What is the best description of a deferral principle? Multiple choice question. It is an agreement between two countries that specifies which items of income will be taxed by the the country where the income is earned. It specifies that income tax liabilities will be very low or even nonexistent in the country where the income is earned. It allows an entity to reduce the taxes paid to the home government by the amount of taxes paid to the foreign government. It dictates that parent companies are not taxed on foreign source income until they actually receive a dividend