The Additional Burden Imposed When the Host-Country of a Subsidiary

question 32

Multiple Choice

The additional burden imposed when the host-country of a subsidiary taxes the subsidiary's income and then that income is taxed again when it is paid to the MNC parent can be relieved by tax treaty provisions that provide for:

• A)not including the subsidiary's profit in the parent's income.
• B)not requiring the subsidiary to pay taxes in the host-country.
• C)the MNC to elect whether it wants the subsidiary's profits taxed in the host-country or the home-country.
• D)tax credits that allow the MNC to reduce the taxes it owes to the home-country by the taxes paid by the subsidiary to the host-country.

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Definitions:

Operating Section

Part of a financial statement that reports on the company's revenues and expenses related to its primary operations.

Investing Section

A part of the statement of cash flows that reports the purchase and sale of long-term investments and property, plant, and equipment, reflecting how the company invests its cash.

Financing Section

Part of the cash flow statement that records cash activities related to funding the company, such as obtaining loans or issuing stock.

Statement of Cash Flows

A financial statement summarizing the total cash earnings from a company's operational activities and investments, alongside the expenses and investments paid out over a specific time frame.