A parent company may employ several criteria to evaluate the performance of its foreign subsidiaries. Sales growth, market share, stability in output, asset growth and returns on investment are some of these criteria. Out of these, Return On Investment (ROI) is the most widely-used criteria-because the interest of the parent company ultimately lies in the Return On its Investment. The ROI as calculated on the basis of reported profit repatriation may however not show the true return from the subsidiary. This is because it may be grossly-distorted, due to the following reasons.
(i) The subsidiary’s profits are taxed in the host country and repatriation of profit may be subject to further tax.… Read the rest