INCOME TAX

9 Months Ended

Sep. 30, 2012

INCOME TAX

INCOME TAX

11. 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 was 20% in 2011 and the nine months ended September 30, 2012. 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 withholding tax of 9% in instances of ownership of less than 50%.

        The Company's effective income tax rate was 43% and 5% for the three months ended September 30, 2011 and 2012, respectively, and 39% and 53% for the nine months ended September 30, 2011 and 2012, respectively. In the three- and nine-month periods ended September 30, 2011, the Company's effective tax rate was impacted by the effect of the impairment loss recognized in the third quarter of 2011 in respect of the DTV trade name and certain of its regional broadcasting licenses. The impairment loss decreased the Company's income before tax by $16.8 million and decreased income tax expense by $3.4 million. Net of the impairment loss, the Company's effective tax rate for the three- and nine-month periods ended September 30, 2011 would have been 35% and 37%, respectively.

        In the three- and nine-month periods ended September 30, 2012, the Company's effective tax rate was impacted by the effect of the impairment loss recognized in the third quarter of 2012 as result of the revision of the useful lives of the Company's broadcasting licenses (Note 8). The impairment loss decreased the Company's income before tax by $82,503 and decreased income tax expense by $16,501. Net of the impairment loss, the Company's effective tax rate for the three- and nine-month periods ended September 30, 2012 would have been 35% and 34%, respectively. The decrease in effective tax rate net of impairment loss when comparing the nine-month periods ended September 30, 2011 and 2012 was primarily due to decreases in stock-based compensation expense, and the recognition of certain foreign tax credits that will be deducted from US income tax.