Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

Income Taxes

v3.23.1
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
 
(14)
INCOME TAXES
Cayman Islands and British Virgin Islands
Under the current laws of the Cayman Islands and the British Virgin Islands, the Group is not subject to any income tax in these jurisdictions.
Hong Kong
ACG HK did not derive any income that is subject to Hong Kong profits tax for the taxable years ended December 31, 2020, 2021 and 2022. Accordingly, no provision for Hong Kong profits tax was required.
People’s Republic of
China
The
Company’s
consolidated PRC entities file separate income tax returns.
Under the Enterprise Income Tax Law (“EIT Law”), the statutory income tax rate is 25% effective from January 1, 2008. Entities that qualify as
“high-and-new
technology enterprises eligible for key support from the State” (“HNTE”) are entitled to a preferential income tax rate of 15%. If an HNTE enterprise no longer satisfies the related accreditation criteria, its certificate will be cancelled and it will cease to be entitled to the related tax incentives.
The Company’s PRC entities are subject to income tax at 25%, unless otherwise specified.
In December 2008, ATA Education received approval from the tax authority that it qualified as an HNTE. The certificate entitled ATA Education to the preferential income tax rate of
15
% effective retroactively from January 1, 2008 to December 31, 2010. In October 2011, ATA Education received approval from the tax authority on its renewal as an HNTE which entitled it to the preferential income tax rate of
15
% effective retroactively from January 1, 2011 to December 31, 2013. In October 2014 and 2017, ATA Education received approval from the tax authority on its renewal as an HNTE, which entitled it to the preferential income tax rate o
f
15
% effective from January 1, 2014 to December 31, 2016 and from January 1, 2017 to December 31, 2019, respectively. In December 2020, ATA Education received approval from the tax authority on its renewal as an HNTE, which entitled it to the preferential income tax rate o
f
15
% effective retroactively from January 1, 2020 to December 31, 2022.
In December 2009, Muhua Shangce received approval from the tax authority that it qualified as an HNTE. The certificate entitled it to the preferential income tax rate of
15
% effective retroactively from January 1, 2009 to December 31, 2011. In July 2012, Muhua Shangce received approval from the tax authority on its renewal as an HNTE which entitled it to the preferential income tax rate of
15
%
effective from January 1, 2012 to December 31, 2014. In November 2015 and October 2018, Muhua Shangce received approval from the tax authority on its renewal as an HNTE, which entitled it to the preferential income tax rate o
f
15
% effective from January 1, 2015 to December 31, 2017 and from January 1, 2018 to December 31, 2020, respectively. Muhua Shangce was no longer consolidated into the Group after the disposal of its entire equity interests on June 2, 2021. See Note 15.
 
The EIT Law and its relevant regulations impose a withholding tax at 10
% for earnings generated beginning January 1, 2008, unless reduced by a tax treaty or agreement, for dividends distributed by a
PRC-resident
enterprise to its immediate holding company outside the PRC. Undistributed earnings generated prior to January 1, 2008 are exempt from withholding tax. As of December 31, 2021 and 2022, the Company has not accrued income taxes on earnings of
RMB2,820,818 and RMB 2,486,972 respectively, generated by its PRC consolidated entities, as the Company plans to reinvest these earnings indefinitely in the PRC. The unrecognized deferred income tax liability related to these earnings was RMB 282,082 and RMB248,697, respectively as of December 31, 2021 and
2022.
Loss
before income taxes were generated in the following jurisdictions:
 
    
Year Ended December 31,
  
    
2020
     
2021
     
2022
  
    
RMB
     
RMB
     
RMB
  
Cayman Islands and British Virgin Islands
      (15,482,426 )       (18,488,181 )       (7,206,659 ) 
PRC
      (95,351,791 )       (19,442,469 )       (47,256,605 ) 
Hong Kong
      (19,367 )       (19,044 )       (52,351 ) 
    
 
 
     
 
 
     
 
 
  
Loss before income taxes
      (110,853,584 )       (37,949,694 )       (54,515,615 ) 
    
 
 
     
 
 
     
 
 
  
Income tax expense (benefit) recognized in the consolidated statements of comprehensive income (loss) consists of the following:
 
    
Year Ended December 31,
  
    
2020
     
2021
     
2022
  
    
RMB
     
RMB
     
RMB
  
PRC
                           
Current income tax expense
      14,402        22,781        130,635  
Deferred income tax benefit
      (10,283,238 )       (1,562,358 )       (6,052,019 ) 
    
 
 
     
 
 
     
 
 
  
Total income tax benefit
      (10,268,836 )       (1,539,577 )       (5,921,384 ) 
    
 
 
     
 
 
     
 
 
  
The actual income tax expense (benefit) reported in the consolidated statements of comprehensive income (loss) differs from the respective amount computed by applying the PRC statutory income tax rate of 25% for each of the years ended December 31, 2020, 2021 and 2022 to earnings before income taxes due to the following:


    
Year Ended December 31,
  
    
2020
     
2021
     
2022
  
    
RMB
     
RMB
     
RMB
  
Computed “expected” income tax expenses (benefit)
      (27,713,394 )       (9,487,423 )       (13,628,904 ) 
Increase in valuation allowance
      11,770,037        10,531,372        6,084,383  
Entities not subject to income tax
      3,445,048        1,691,406        1,429,868  
Non-deductible
expenses
                           
Entertainment
      226,312        280,436        192,298  
Share-based compensation
      444,196        259,993        364,939  
Other
non-deductible
expenses
      1,634,539        3,927,212       
1,625,037

  
Additional deduction of research and development costs
      (288,502 )       (120,598 )       —    
Disposal of equity interests in subsidiaries
      —          (8,385,539 )       (1,577,200 ) 
Other
      212,928        (236,436 )       (411,805 ) 
    
 
 
     
 
 
     
 
 
  
Actual income tax benefit
      (10,268,836 )       (1,539,577 )       (5,921,384 ) 
    
 
 
     
 
 
     
 
 
  
The applicable PRC statutory income tax rate is used since the Group’s taxable income is generated in the PRC.
 
The tax effects of the Group’s temporary differences that give rise to significant portions of the deferred income tax assets and liabilities are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
RMB
     
RMB
  
Deferred income tax assets:
                  
Tax loss carry forwards
      27,926,708        34,562,809  
Impairment and investment loss of long-term investments
      10,523,946        10,598,946  
Lease liabilities
      10,179,317        9,112,298  
Intangible assets and other
non-current
assets
      945,446        405,191  
Provision for loan receivable and other receivables
      1,887,015        2,927,994  
Accrued expenses and other payables
      2,818,170        3,652,004  
Property and equipment, net
      81,512        53,301  
Donation
      7,500,000        5,000,000  
 
  
 
 
 
  
 
 
 
Total gross deferred income tax assets
   
 
61,862,114
 
   
 
66,312,543
 
Less: valuation allowance
      (48,897,848 )       (51,769,696 ) 
    
 
 
     
 
 
  
Total deferred income tax assets, net
   
 
12,964,266
 
   
 
14,542,847
 
Deferred income tax liabilities:
                  
Intangible assets
      23,338,194        19,029,861  
Right-of-use
assets
      9,838,270        8,721,522  
Contract cost assets
      4,719,124        5,670,767  
 
  
 
 
 
  
 
 
 
Total gross deferred income tax liabilities
   
 
37,895,588
 
   
 
33,422,150
 
Net deferred income tax liabilities
   
 
24,931,322
 
   
 
18,879,303
 
The movements of the valuation allowance are as follows:
 
    
Year Ended December 31,
  
    
2020
     
2021
     
2022
  
    
RMB
     
RMB
     
RMB
  
Balance at the beginning of the period
     
44,713,570
       
56,172,945
       
48,897,848
  
Additions
     
11,770,037
       
10,531,372
       
6,084,383
  
Reduction due to expiration of temporary difference
      —          —          (2,500,000 ) 
Reduction as a result of
deconsolidation of subsidiaries
     
(310,662
 )      
(17,806,469
 )      
(712,535
 ) 
    
 
 
     
 
 
     
 
 
  
Balance at the end of the period
     
56,172,945
       
48,897,848
       
51,769,696
  
    
 
 
     
 
 
     
 
 
  
As of December 31, 2022, the valuation allowance of RMB 51,769,696 was related to the deferred income tax assets of PRC entities which were in loss position.
As of December 31, 2022, the Group had tax loss carry forwards for PRC income tax purpose of RMB 138,251,236
,
of which RMB 1,361,508, RMB 6,363,372, RMB 9,497,471, RMB 3,920,683, RMB 28,317,935, nil, RMB 28,305,140, RMB 23,594,429, RMB 16,581,088, and RMB 20,309,610 will expire if unused by December 31, 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031 and 2032, respectively.
For the years ended December 31, 2020, 2021 and 2022, the Group had no unrecognized tax benefits, and thus no related interest and penalties were recorded. Also, the Group does not expect that the amount of unrecognized tax benefits will significantly increase within the next twelve months.
According to the PRC Tax Administration and Collection
La
w, the statute of limitation is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitation is extended to five years under special circumstances where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. The income tax return of each of the Company’s PRC consolidated entities is subject to examination by the relevant tax authorities for the calendar tax years beginning 2018.