The ability to hide the inactive subsidiaries from the subsidiary context in reports is currently logged as an enhancement in NetSuite [#132165] and is in voting stage.
As an alternate workaround, we can use the subsidiary restriction in the roles for restricting the subsidiary context view.
If the role has access to all subsidiaries, we can change it to ‘Active subsidiaries’. Hence, only active subsidiaries be shown in the subsidiary context.
If the role restriction currently used is ‘Selected’, then we can unselect the inactive subsidiaries from the selection.
Please note that by restricting the subsidiary in the above manner, no data regarding the inactive subsidiary will be available to the role.
Additionally, we can only use this workaround for custom roles and not standard roles.