Which policy ensures expatriates' combined home and host taxes are no more than they would have paid if they remained in their home country, with the expatriate's company paying any additional taxes?

Which policy ensures expatriates' combined home and host taxes are no more than they would have paid if they remained in their home country, with the expatriate's company paying any additional taxes?

• A. Tax protection
• B. Tax equalization policy
• C. Tax equalization
• D. Tax equalization plan

Answer: (C)

Tax equalization is used to keep the financial impact of an overseas assignment at the same level as if the employee had stayed in their home country. The way it works is by pegging the employee’s tax liability to what they would have paid at home. If the host country’s taxes are higher due to the assignment, the employer covers the extra amount so the total taxes (home plus host) don’t exceed the home-country level. If host taxes end up lower, the employee still ends up with a tax burden no greater than their home tax, preserving their take-home pay. This approach directly matches the description, where the company pays any additional taxes to ensure the total tax burden doesn’t exceed staying home.

Tax equalization is used to keep the financial impact of an overseas assignment at the same level as if the employee had stayed in their home country. The way it works is by pegging the employee’s tax liability to what they would have paid at home. If the host country’s taxes are higher due to the assignment, the employer covers the extra amount so the total taxes (home plus host) don’t exceed the home-country level. If host taxes end up lower, the employee still ends up with a tax burden no greater than their home tax, preserving their take-home pay. This approach directly matches the description, where the company pays any additional taxes to ensure the total tax burden doesn’t exceed staying home.