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:

Question

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Tax credits provided in tax treaties allow the MNC to reduce the taxes it owes to the home-country by the taxes paid by the subsidiary to the host-country. This relieves the burden of double taxation on the MNC and ensures fair taxation. The other options such as not including the subsidiary's profit in the parent's income or not requiring the subsidiary to pay taxes in the host-country may not be feasible or desirable options for the host-country or the MNC. Similarly, allowing the MNC to choose where the subsidiary's profits are taxed may lead to tax avoidance or unfair taxation.

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