International tax law operates on a framework of bilateral agreements known as Double Taxation Agreements (DTAs), or tax treaties. These treaties act as a rulebook, preventing the same income from being taxed twice and stopping tax evasion. At the heart of every DTA is a fundamental question: which country gets the right to tax cross-border income? The answer involves two key concepts: the 'residence' state, where the person or company earning the income is based, and the 'source' state, where the income originates.

Most DTAs are based on one of two templates: the OECD Model Tax Convention or the UN Model Tax Convention. The OECD Model, developed by the Organisation for Economic Co-operation and Development, generally favours the residence state. This benefits capital-exporting, developed countries, as their companies' foreign profits are primarily taxed at home. Conversely, the UN Model grants more taxing rights to the source state. This approach is preferred by developing countries, which are often capital-importing and want to tax the economic activity occurring within their borders.

A DTA's power hinges on clearly defining who is a 'resident' of a contracting state. Article 4 of the model treaties provides the test. For a company, this is usually straightforward: its place of incorporation or place of effective management. For individuals, it's more complex. A person can easily be a resident of two countries under their domestic laws, a situation known as dual residency. To solve this, DTAs contain a series of 'tie-breaker' rules to assign residency to a single state for treaty purposes.

It's crucial to distinguish between juridical and economic double taxation. Juridical double taxation, the primary target of DTAs, occurs when two states tax the same person on the same income. Economic double taxation is different; it's when the same economic transaction or profit is taxed in two different hands. A classic example is taxing corporate profits and then taxing the dividends paid out of those profits to shareholders. While DTAs can mitigate this (e.g., through reduced dividend withholding taxes), their main focus remains on resolving juridical double taxation.

What happens when two tax authorities disagree on how to apply a treaty? This is where the Mutual Agreement Procedure (MAP) comes in. Outlined in Article 25, MAP is a government-to-government dispute resolution process. A taxpayer who believes they are being taxed contrary to the treaty can request their home tax authority to enter into negotiations with the other country's authority to find a solution. It's a critical safety valve, though it can be a lengthy process.

Even with a rulebook, interpretation is key. A major debate in treaty law is static versus ambulatory interpretation. A static approach argues that a treaty's terms should be interpreted as they were understood when the treaty was signed. An ambulatory (or dynamic) approach contends that the terms should evolve, incorporating changes in domestic law or the OECD Model's commentary after the treaty was signed. Most jurisdictions now favour a dynamic approach, allowing treaties to remain relevant without constant renegotiation.

Recent updates to the OECD Model, particularly from 2017, reflect the need to adapt to a globalised, digital economy. These changes address issues like hybrid mismatches and treaty shopping, ensuring profits are taxed where substantive economic activities take place. This evolution continues, with ongoing discussions about how to properly allocate taxing rights in an age of remote work and digital services, impacting how income streams like dividends, interest, and royalties are treated under the treaty framework.