INCOME TAX

6 Months Ended

Jun. 30, 2012

INCOME TAX

INCOME TAX

10. INCOME TAX

        The Company is subject to US (domestic), Russian and Kazakh income taxes, based on US legislation, Russian tax legislation, Kazakh legislation and the Double Tax Treaty of 1992 between the US and Russia (the "Treaty"). The Company's Russian- and Kazakh-based subsidiaries are subject to Russian and Kazakh income tax. The statutory income tax rate in Russia and Kazakhstan in 2011 and in the first half of 2012 was 20%. US taxable income or losses recorded are reported on CTC Media, Inc.'s US income tax return. CTC Media, Inc.'s taxable revenues consist predominantly of dividends by its Russian subsidiaries. Dividends distributed to CTC Media, Inc. are subject to Russian withholding tax of 5% under the Treaty. Dividends distributed within Russia are subject to a withholding tax of 9% in case of ownership of less than 50%.

        The Company's effective income tax rate was 37% and 34% for the three months ended June 30, 2011 and 2012, respectively, and 38% and 34% for the six months ended June 30, 2011 and 2012, respectively. The decrease in effective tax rate when comparing the three- and six-month periods ended June 30, 2011 and 2012 was primarily due to decreases, as a percentage of consolidated income before tax, in stock-based compensation expense, which is not deductible from income tax, and the recognition of certain foreign tax credits that will be deducted from US income tax.