Income Taxes

6 Months Ended

Jun. 30, 2017

11.

INCOME TAXES

The Company is required to file income tax returns in both the United States and the PRC. Its operations in the United States have been insignificant and income taxes have not been accrued. In the PRC, the Company files tax returns for Shenzhen Wonhe and Shengshihe Consulting.

The provision for (benefit from) income taxes consists of the following for the three and six months ended June 30, 2017 and 2016:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Current	$	1,234,731	$	417,690	$	2,320,448	$	814,995
Deferred		14,892		-		28,542		-

	$	1,249,623	$	417,690	$	2,348,990	$	814,995

The following is a reconciliation of the statutory rate with the effective income tax rate for the three and six months ended June 30, 2017 and 2016.

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Tax at PRC statutory rate		25.0	%		25.0	%		25.0	%		25.0	%
VIE tax holiday		-			(12.5	)		-			(12.5	)
Other		0.4			0.4			0.4			0.4

Effective tax rate		25.4	%		12.9	%		25.4	%		12.9	%

The following presents the aggregate dollar and per share effects of the Company’s subsidiaries’ tax holidays:

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Aggregate dollar effect of tax holiday	$	-	$	444,411	$	-	$	1,448,924
Per share effect, basic and diluted	$	-	$	0.01	$	-	$	0.03

During the quarter ended June 30, 2017, the Company filed its U.S. federal income tax returns, including information returns on Internal Revenue Service (“IRS”) Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations” for the fiscal years ended December 31, 2015, 2014, and 2013. Failure to furnish any income tax and information returns with respect to any foreign business entity required, within the time prescribed by the IRS, subjects the Company to civil penalties. Management is of the opinion that penalties, if any, that may be assessed would not be material to the consolidated financial statements.

Because the Company did not generate any income in the United States or otherwise have any U.S. taxable income, the Company does not believe that it has any U.S. federal income tax liabilities with respect to any transactions that the Company or any of its subsidiaries may have engaged in through December 31, 2016. However, there can be no assurance that the IRS will agree with this position, and therefore the Company ultimately could be liable for U.S. federal income taxes, interest and penalties. The tax years ended December 31, 2015, 2014 and 2013 remain open to examination by the IRS.

All the Company’s operations are conducted in the PRC. At June 30, 2017, the Company’s unremitted foreign earnings of its PRC subsidiaries totaled approximately $32.9 million and the Company held approximately $33.8 million of cash and cash equivalents in the PRC. These unremitted earnings are planned to be reinvested indefinitely into the operations of the Company in the PRC. While repatriation of cash held in the PRC may be restricted by local PRC laws, most of the Company’s foreign cash balances could be repatriated to the United States but, under current U.S. income tax laws, would be subject to U.S. federal income taxes less applicable foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability on the unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation, and as the Company does not plan to repatriate any cash in the PRC to the United States during the foreseeable future, no deferred tax liability has been accrued.

Wonhe High-Tech International, Inc. 10-Q