Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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Income Taxes
9 Months Ended
Sep. 30, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

18. Income Taxes

 

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the nine months ended September 30, 2017 and 2016.

 

The Company's Italian subsidiaries are governed by the income tax laws of Italy. The corporate tax rate in Italy is 28.82% (IRES at 24% plus IRAP ordinary at 4.82%) on income reported in the statutory financial statements after appropriate tax adjustments.

 

The Company's Austrian subsidiaries are governed by the income tax laws of Austria. The corporate tax rate in Austria is 25% on income reported in the statutory financial statements after appropriate tax adjustments.

 

The reconciliation of income tax expense at the U.S. statutory rate of 35% to the Company’s effective tax rate is as follows:

 

    September 30,
2017
  September 30,
2016
U.S. Statutory rate   $ (8,269 )   $ (130,557 )
Tax rate difference between Italy, Austria and U.S.     45,860       (112,465 )
Change in Valuation Allowance     330,199       483,044  
Permanent difference     (34,371 )     8,116  
Effective tax rate   $ 333,419     $ 248,138  

 

The Company has accumulated a net operating loss carry forward ("NOL") of approximately $12.6 million as of September 30, 2017 in the U.S. This NOL may be offset against future taxable income through the year 2036. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the NOL. The Company periodically evaluates whether it is more likely than not that it will generate sufficient taxable income to realize the deferred income tax asset. At the present time, management cannot presently determine when the Company will be able to generate sufficient taxable income to realize the deferred tax asset; accordingly, a 100% valuation allowance has been established to offset the asset.

 

Utilization of NOLs are subject to limitation due to any ownership change (as defined under Section 382 of the Internal Revenue Code of 1986) which resulted in a change in business direction. Unused limitations may be carried over to future years until the NOLs expire. Utilization of NOLs may also be limited in any one year by alternative minimum tax rules.

 

Under Italian tax law, the operating loss carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset against national income tax, up to the limit of 80% of taxable annual income. This restriction does not apply to the operating loss incurred in the first three years of the Company's activity, which are therefore available for 100% offsetting.

 

Under Austrian tax law, the operating loss carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset against national income tax, up to the limit of 75% of taxable annual income.

 

The provisions for income taxes consist of currently payable income tax in Italy and Austria. The provisions for income taxes are summarized as follows:

 

    September 30,
2017
  September 30,
2016
Current   $ 333,419     $ 248,138  
Deferred     —         —    
Total   $ 333,419     $ 248,138  

 

The tax effects of temporary differences that give rise to the Company’s net deferred tax asset are as follows:

 

    September 30,
2017
  September 30,
2016
Net loss carryforward - Foreign   $ 94,848     $ 2,122  
Net loss carryforward - US     4,393,558       3,584,959  
      4,488,406       3,587,081  
Less valuation allowance     (4,488,406 )     (3,587,081 )
Deferred tax assets   $ —       $ —