Income tax

TMK, as a global company with production facilities and trading companies located in Russia, the CIS, the United States, and Europe, is exposed to local taxes charged to businesses. In 2010 and 2011, the following corporate income tax rates were in force in the countries where our production facilities are located: 20% in Russia, 35% (federal rate) in the United States and 16% in Romania.

In 2011, a pre-tax income of $544 million was reported as compared to $185 million in 2010 and in 2011 an income tax expense of $159 million was recognised as compared to $81 million in 2010. Our effective income tax rate declined from 44% to 29%, closer to the normal level of the income tax rate of the Group considering the fiscal residence structure of the Group’s assets. The effective income tax rate declined due to, first, a significant growth in pre-tax income accompanied by a lower level of non-deductible expenses, second, a higher share of profit before tax of the entities with lower than the Group average income tax rate, and, third, non-taxable income related to gain on changes in fair value of derivative financial instrument.

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