20. Tax matters

9 Months Ended

Sep. 30, 2011

20.	Tax matters:

	(a)	Income tax

		The Company is subject to income, withholding, business and other taxes on income generated in the jurisdictions in which it does business.

		Taiyang is exempt from corporate income tax due to the nature of its business. Beginning 2006, the PRC government instituted a tax exemption policy for certain aspects of the agricultural industry. Taiyang’s business qualifies as tax exempt. The exemption relates to unprocessed agricultural products and is granted by the relevant taxing authority on a year-by-year basis. There is no stated expiration to the exemption, and while Taiyang expects to continue to receive favorable tax treatment, changes in government policy or the nature of Taiyang’s operations could result in Taiyang being required to pay income taxes.

20.	Tax matters (continued):

	(a)	Income tax (continued)

		Ningguo is subject to corporate income tax in the PRC at a rate of 25% as a non-resident enterprise, as well as business tax at a rate of 5% on service income.

		Under the laws of the BVI, Dynamic Ally is not subject to tax on its income or capital gains.

		Parent is subject to United States income tax at a rate of 35%. No income tax expense was incurred in the United States in the nine months ended September 30, 2011 or 2010 as all income was generated in the PRC. Business activity in the United States consists primarily of professional service expenses related to the Company’s public listing and compliance.

		Pursuant to the Consulting Services Agreement between Taiyang and Ningguo, Taiyang pays a consulting service fee to Ninnguo that is equal to all of Taiyang’s net income. According to the applicable PRC Enterprises Tax Law, such income is subject to business tax at a rate of 5% and enterprise income tax at a rate of 25%. We recognized income tax expense amounting to $853,192 and $267,294 in the nine months ended September 30, 2011 and 2010, respectively, and $158,752 and $169,738 in the three months ended September 30, 2011 and 2010, respectively.

		The reconciliation between taxes computed by applying the statutory income tax rate of 25% applicable to the Company’s operations to income tax expense is:

	2011			2010

Income before income taxes	$	2,302,931		$	4,858,790

Income tax at statutory rate of 25% in 2011 and 10% in 2010		575,733			468,097
Tax on income earned prior to contractual agreements between Taiyang and Ningguo		—			(225,606	)
Non-taxable gain on derivative financial instruments		(118,318	)		—
Non-deductible expenses		100,035			24,803

Income tax expense	$	557,450		$	267,294

Tax declarations, together with other legal compliance areas, such as customs and currency controls are subject to review and investigation by various agencies and authorities, who are enabled by law to impose very severe fines, penalties and interest charges. These facts create tax risks in China substantially more significant than typically found in countries with more developed tax systems and structures. Various tax authorities could take differing positions on interpretive issues and the effect could be significant. The fact that a year has been reviewed does not close that year, or any tax declaration applicable to that year, from future review and assessment by tax authorities. If taxing authorities determine that there is an underpayment of taxes, they could impose a penalty between zero and five times the amount of taxes payable, at their discretion. Based on existing PRC tax regulations, the tax years of Taiyang and Ningguo for fiscal years 2006 through 2010 remain subject to examination by the tax authorities. Based on existing United States tax regulations, the tax years of parent for fiscal years 2003 through 2010 remain subject to examination by the tax authorities. The Company has not adopted any uncertain tax positions during the periods presented.

20.	Tax matters (continued):

	(b)	Value added tax

		The Company is subject to value added tax (“VAT”) on products that it sells within the PRC. VAT payable is netted against VAT paid on purchases. Certain of the Company’s products, including duck eggs, seedlings, and feed products, are exempted from VAT as a result of government agricultural incentives. If taxing authorities determine that payment is late or there is an underpayment of taxes, they could impose a penalty between zero and five times the amount of taxes payable, at their discretion.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

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+ Details

ANHUI TAIYANG POULTRY CO INC 10-Q