Nations and individuals rely on one another to satisfy the common needs of daily life. As the international community moves toward achieving a unified world, there arises a necessity for legal provisions governing international economic relations, particularly in the commercial, financial, and economic spheres. The international community has recognized this truth in light of the modern international economic system.

The increase in the volume of cross-border transactions and exchanges that the global economy has experienced since the beginning of the twentieth century has led to a different understanding of taxation in general and of tax sovereignty in particular. Whereas taxation was once confined to the interests or borders of a single state, it has now extended to encompass international interests. This shift has occurred amidst the inability of national legislation to keep pace with new economic challenges, resulting in the emergence of international tax issues, the most prominent of which is the phenomenon of international double taxation. Traditional methods and domestic legislation have proven inadequate to address these developments, highlighting the need for diverse mechanisms to tackle this phenomenon and to ensure the resolution of disputes arising from it. Consequently, international tax treaties—both bilateral and multilateral—have emerged as mechanisms to address double taxation, combat international tax evasion, and resolve related disputes. However, bilateral treaties play a more effective role in this area, while multilateral treaties, particularly those derived from international organizations, serve as models to be emulated, such as the OECD Model Tax Convention, which is the most widely used, and the United Nations Model Convention, which takes into account the interests of developing countries.

Tax treaties play a crucial role in defining terms within the tax domain and establishing criteria for tax liability. They also specify technical methods aimed at reducing double taxation between the two states by distributing tax jurisdiction concerning various income and wealth taxes. The use of a credit mechanism is employed to avoid double taxation, particularly when both states retain the right to impose taxes. Furthermore, these treaties include amicable procedures for resolving certain issues, particularly concerning transfer pricing evaluation mechanisms and providing preferential rates to encourage foreign investments. They also seek to combat tax evasion arising between the two states by mandating the exchange of tax information between the contracting parties. Additionally, they uphold the principle of non-discrimination based on nationality concerning tax obligations imposed on individuals, which acts as a guarantee for taxpayers and supports economic relations between the two states.

As a result, direct foreign investment institutions take these provisions into account when selecting a host country.