13. INCOME TAXES

The components of the Company's income (loss) before income taxes were as follows:

	2010			2011			2012

Pretax income (loss):
Domestic	$	(10,145	)	$	(31,892	)	$	(12,557	)
Foreign		227,211			168,811			177,246

	$	217,066		$	136,919		$	164,689

The following table summarizes the Company's significant components of the provision for income taxes:

	2010			2011			2012

Domestic—current	$	(1,938	)	$	(17,753	)	$	(7,047	)
Foreign—current		(62,648	)		(59,140	)		(58,568	)
Domestic—deferred		(3,256	)		(10,315	)		(20,325	)
Foreign—deferred		1,808			10,805			21,067

	$	(66,034	)	$	(76,403	)	$	(64,873	)

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 United States and Russia ("Treaty"). 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 paid by its owned-and-operated affiliate stations and Networks and interest on deposits. Dividends distributed to CTC Media, Inc. are subject to a Russian withholding tax of 5% under the Treaty. Dividends distributed within Russia are subject to a withholding tax of 9% in 2010, 2011 and 2012. Starting from 2011, withholding tax is abolished with respect to dividends distributed out of profits earned in 2011 and the following periods, for Russian companies holding more than 50% in a Russian distributing subsidiary for more than 365 days.

The Russian- and Kazakh-based companies are subject to Russian and Kazakh income tax. The statutory income tax rates in Russia and Kazakhstan was 20% in 2010, 2011 and 2012. The reconciliation of the US statutory federal tax rate of 35% to the Company's effective tax rate is as follows:

	2010			2011			2012

Income tax expense at US statutory rates (35%)	$	(75,973	)	$	(47,922	)	$	(57,642	)
Non-deductible expenses (stock-based compensation)		(11,902	)		(6,411	)		(1,673	)
Reversals of tax contingencies non-deductible for income tax purposes		1,806			1,075			1,956
Previously unrecognised foreign tax credit		6,094			871			4,680
Different foreign tax rates		13,072			(793	)		(12,375	)
Effect of impairment loss (non-deductible assets)		—			(25,091	)		—
Other permanent differences		869			1,868			181

Income tax expense	$	(66,034	)	$	(76,403	)	$	(64,873	)

The reversals of tax contingencies recognized in 2010, 2011 and 2012 income include reversals relating to Channel 31 Group income and non-income tax contingencies recorded due to a lapse in the statute of limitations.

Deferred tax assets and liabilities are recorded for the difference between the financial statement and tax bases of assets and liabilities. The following table summarizes the major components of the Company's deferred tax assets and liabilities as of December 31, 2011 and 2012:

	2011			2012

Deferred tax assets and liabilities
Net operating losses and tax loss carry forwards	$	551		$	588
Foreign tax credits		—			—
Programming rights		48,234			55,646
Valuation allowance		(531	)		(588	)

Total deferred tax assets	$	48,254			55,646

Intangible assets		(35,804	)		(21,933	)
Property and equipment		(2,644	)		(1,665	)
Unremitted earnings of Russian subsidiaries		(12,540	)		(39,007	)
Other deferred tax liabilities		(177	)		(65	)

Total deferred tax liabilities	$	(51,165	)	$	(62,670	)

As of December 31, 2012, the amount of unrecognized deferred tax liabilities for unremitted earnings of Russian subsidiaries (including earnings already reinvested) is approximately $129 million as it is the Company's intention to reinvest such earnings permanently.

The following table presents the Company's deferred tax assets and liabilities as of December 31, 2011 and 2012 attributable to different tax paying components in different tax jurisdictions:

	2011			2012

Deferred tax assets:
Domestic tax component	$	—		$	—
Foreign tax component		48,785			56,234
Valuation allowance		(531	)		(588	)

Total deferred tax assets	$	48,254		$	55,646

Deferred tax liabilities:
Domestic tax component	$	(12,370	)	$	(39,007	)
Foreign tax component		(38,795	)		(23,663	)

Total deferred tax liabilities	$	(51,165	)	$	(62,670	)

As of December 31, 2011 and 2012, certain of the Company's consolidated Russian subsidiaries had tax loss carryforwards of $2,655 and $2,938, respectively, resulting in potential deferred tax benefits of $531 and $588, respectively. The Company has established a valuation allowance on the Russian tax carryforwards due to the uncertainty of the future utilization. The NOLs expire in 2021.

Effective January 1, 2007, the Company elected to claim foreign tax credits ("FTCs"). FTCs allow the Company to decrease US income tax by the amount of appropriate foreign income and withholding taxes.

As of December 31, 2011 and December 31, 2012, the Company included accruals for unrecognized income tax benefits and related interest and penalties totaling $3,819 and $1,590, respectively, as a component of accrued liabilities, including amounts relating to pre-acquisition operations of the Channel 31 Group of $2,091 and $317, respectively. The decrease in these accruals mostly relates to reversals of amounts previously accrued due to lapse of statute of limitations. All of the unrecognized income tax benefits, if recognized, would affect the Company's effective tax rate. Interest and penalties related to unrecognized income tax benefits are classified in the financial statements as interest expense and other non-operating expense, respectively.

Although the Company believes it is more likely than not that all recognized income tax benefits would be sustained upon examination, the Company has recognized some income tax benefits that have a reasonable possibility of being successfully challenged by the tax authorities. These income tax positions could result in total unrecognized tax benefits increasing by up to $1,686 if the Company were to lose such a challenge by the tax authorities. However, the Company believes that it is reasonably possible that only $1,309 of the total $1,686 potential increase could occur within twelve months from December 31, 2012. This amount mainly represents certain recognized income tax benefits which may be challenged by the tax authorities during their ongoing inspections of Domashny and Peretz Networks, Soho Media, CTC Region and the planned inspection of CTC Network, as well as certain income tax penalties which may be imposed by US tax authorities as the result of late payment by CTC Media, Inc. of estimated tax for 2007.

The total amount of unrecognized tax benefit that could significantly change within 12 months due to a lapse of statutory limitation term comprised $611 as of December 31, 2012.

The tax years ended December 31, 2010, 2011 and 2012 remain subject to examination by the Russian and US tax authorities. The tax years ended December 31, 2008 through 2012 remain subject to examination by the Kazakh tax authorities.