How are foreign subsidiaries of multinationals taxed?
Foreign subsidiaries of multinationals are subject to taxation in Minnesota according to the international tax laws of the United States. Under these laws, the taxation of a foreign subsidiary depends on the amount of earnings that the subsidiary has within the United States. If the foreign subsidiary has income in the United States, a portion of this income is taxed according to the corporate tax rate in Minnesota. This rate is currently 21%. In addition, if the foreign subsidiary has generated income from sales conducted within the United States, the U.S. federal government will also levy taxes on the profits made from such sales. This is done through the foreign tax credit system. Furthermore, the United States also imposes a worldwide taxation of foreign subsidiary earnings. Under the worldwide taxation system, foreign earnings are taxed at the same rate as domestic earnings. This tax must be paid regardless of whether or not the foreign subsidiary conducted transactions in the United States. In addition, if the foreign subsidiary has investments in the United States, this also must be reported and taxed. Therefore, foreign subsidiaries of multinationals may be subject to a variety of taxes depending on the level of earnings that the subsidiary has in the United States. Ultimately, the taxation of foreign subsidiaries is determined by the tax laws of the United States and the corporate tax rate set in Minnesota.
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