Almost all the States, including Italy, wish to tax the worldwide incomes of their residents (residence jurisdiction).
At the same time, the States where the item of income originated, assert the right to impose taxation even where the taxable person is not a resident of that State (source of income jurisdiction). As a result, a person may be taxed on the basis of both, residence and source of income.
To avoid double taxation on the same item of income and to favour international trade, the States have often entered into bi-lateral treaties with their trading partners to share a percentage of the right of taxation.
It is important to understand how double taxation treaties are applied in practice. This involves understanding their structure, how they operate and the knowledge of the percentages agreed upon between the States.
Further, international commerce is often affected by indirect taxation, especially VAT which is applied to cross-border transactions.
The burden of taxation imposed by industrialised countries has caused the spreading (development) of the so-called tax havens which propose themselves as the way to reduce taxation through transfer price, treaty shopping, shifting of residence, interposition of subsidiaries .
Some States, on their side, are damaged from tax havens and attempt continuously to curb their activity through several means: black lists (official documents where are listed States which, for some reason, are considered tax havens), CFC legislation (attribution of profits of a controlled subsidiary located in a tax haven to the domestic parent and taxing those profits in the hands of the parents, so that deferral of tax payment is eliminated), thin capitalisation rules (restrictions on the deductibility of interest payments made by corporations with excessive debt to equity ratios to substantial non-resident shareholders), co-operation between revenue authorities (Art. 26 of OECD model, UE directives 76/308 and 77/799), inclusion of limitation of benefit articles in bi-lateral treaties to avoid treaty shopping.
Such States, yet, cannot obstacle the development of international trade and activity of multinational enterprises. The Member States of the European Union, for instance, have adopted measures that favour the movement of capitals within the EU, such as the EU Directive parent-subsidiary.