Toubani Resources Inc. T.TRE

Details in F/S re: Taxes

[repap_nb]

looked at a few random financial statements to try and get a better understanding of the tax related issues James keeps talking about.  As I said before I held the compompany since 200 and have read each Annual report since and was not triggered by anything i read.

for ex: from Year ending Dec 2005 this is the full note for Tax related issues:  SF needs to deal with taxes in both Canada (which they have taxes losses being used up) and China which the AI's are responsible for paying as shown below and the company needs to provision for in case the taxes are not paid by the AI's
Note the highlights....sorry for they length but had to post the full note so I would not be accussed of hiding anything... 

12. PROVISION FOR INCOME TAXES

The provision for income taxes differs from that obtained by applying the statutory tax rate as a result of the

following:

2005 2004

$ $

Income before income taxes 88,943 57,818

Expected statutory tax rate 36.12% 36.12%

Expected income tax expense 32,126 20,884

Increase (decrease) in income taxes resulting from:

Unrecognized income tax losses arising from losses

of the Company and its subsidiaries 16,043 14,559

Income tax at different rates in foreign jurisdictions (22,045) (18,382)

Profits not subject to taxation as the authorized intermediaries are responsible

to pay applicable taxes therefrom on behalf of the Company [b] (25,884) (17,367)

240 (306)

Additional tax reserves on Authorized Sales Activities [b]

Provision for the year [b] 10,437 8,140

Reversal of prior years’ provision [b] (3,421) (2,790)

7,256 5,044

[a] Income tax rates of major tax jurisdictions in which the Company operates

The PRC wholly foreign-owned enterprises (“WFOEs”) and CJVs are governed by the Income Tax Laws of

the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax

laws (the “Income Tax Laws”). Pursuant to the Income Tax Laws, WFOEs, Sino-foreign equity and cooperative

joint venture enterprises are subject to corporate income tax at an effective rate of 33% [30% state

income taxes plus 3% local income taxes] on income as reported in their statutory financial statements. The

PRC WFOEs and CJVs are eligible for an exemption from state and local income taxes for two years starting

from the first profitable year of operations after offsetting losses carried forward, followed by a 50%

exemption for the next three years. Subject to the approval of the relevant authorities, foreign invested

enterprises categorized as forestry projects may be allowed a 15% to 30% reduction of the amount of income

tax payable for a further period of 10 years after tax holidays.

Hong Kong profits tax has been provided at the rate of 17.5% [2004 – 17.5%] on the estimated assessable

profits arising in Hong Kong during the year.

[b] Provision for tax related liabilities  (all relevent-read in detail)

Two of the Company’s principal operating subsidiaries incorporated in the British Virgin Islands (the “BVI

Subsidiaries”) are engaged in the sale of wood chips and standing timber and earning commission income

(“Authorized Sales Activities”) in the PRC through authorized intermediaries (“AI”) that are domestic

enterprises. In accordance with Income Tax Laws, foreign companies deriving income from sources in the

PRC are subject to corporate income tax as a foreign investment enterprise. Under the terms of the master

agreements, relevant sales and purchase contracts and commission agreements made with the AI, the AI are

responsible for paying all PRC taxes on behalf of the BVI subsidiaries that arise from the Authorized Sales

Activities, including but not limited to, corporate income tax, value-added tax and business tax. Accordingly,

the BVI Subsidiaries are not required to and therefore did not directly pay any PRC taxes with respect to the

profits earned in the PRC. The relevant income remitted to the Company should have already been taxed and

not subject to additional PRC taxes.

If PRC tax authorities were to determine that the AI did not pay applicable PRC taxes as required on the

Authorized Sales Activities on behalf of the BVI Subsidiaries, they may attempt to recover the applicable

PRC taxes or any shortfall from the BVI Subsidiaries. Since the BVI Subsidiaries are unable to ascertain

whether the AI have properly handled such tax settlements and/or able to recover relevant PRC taxes

required to be paid by the BVI Subsidiaries from the AI, a provision for the corporate income tax at an

amount representing management’s best estimate of the amount the PRC tax authorities might seek to

recover, is recognized in the financial statements each year. The yearly provision is reversed to the income

statement after a period of three years based on management’ best estimate of the liability. This means that

the Company always maintains a three-year provision for tax on the profits earned from the Authorized Sales

Activities of the three most recent years.

Included in accounts payable and accrued liabilities as at December 31, 2005 is the balance of the provision

for these tax related liabilities amounting to $25,379,000 [2004 – $17,936,000] provided on the profits of the

Authorized Sales Activities earned by the BVI Subsidiaries over the three previous years.

[c] Losses carry forward

As at December 31, 2005, the Company has income tax losses of approximately $37,562,000 which can be

applied against future years’ taxable income in Canada. Approximately $1,974,000 of these tax losses will

expire in 2006, $1,696,000 in 2007, $1,476,000 in 2008, $1,145,000 in 2009, $992,000 in 2010, $1,018,000 in

2011, $9,700,000 in 2012 and $19,561,000 in 2013. In addition, as at December 31, 2005, the Company’s

PRC WFOEs and CJVs have incurred tax losses in the PRC of approximately $18,451,000 [2004 -

$12,197,000].

The benefit of these losses, has not been reflected in the financial statements as management does not

consider it to be more likely than not that the related future income tax asset will be realized. There are no

other material temporary differences.