When an individual or a business enterprise is recognized by more than one country to be engaged in economic activities, the tax regulations of each country may be formulated in such a way that the individual or enterprise is taxed not only on the income in the country in question but on all income earned in other countries. This penalizes inequitably any economic activity with links outside a given country. It is a special difficulty for individuals with income in one country who are also resident and employed in a second country.
The extent of the problem is indicated by the fact that the accepted method of avoiding the difficulty is through bilateral double taxation agreements between the country pairs concerned. There are over 140 countries between each of which such agreements have to be negotiated. The problem is aggravated by the difficulty of determining in precisely which country the income was generated, particularly since corporate accounting systems may conceal rather than reveal the exact manner in which the income was generated.