International juridical double taxation mainly arises today because the vast majority of states, in addition to levying taxes on domestic assets and domestic economic transaction, levy taxes on capital situated and transactions carried out in other countries to the extent that they benefit resident taxpayers. For example, the foreign income or foreign capital of a resident natural or juridical person is often subject to taxation based on the `principle of residence` (taxation of worldwide income or worldwide capital). At the same time, however, no State waives its taxation of transactions or capital within its own territory even if they benfit, or belong to, non-resident persons (principle of sourse). As a consequence, tax claims of different states necessarily overlap.
Secondly, double taxation may also arise when a person is deemed a resident simultaneously by two or more states or because sourse rules overlap.
Thirdly, double taxation may arise because certain states tax the worldwide income of their citizens even when they are residents of another state.
By contrast, the term `economic double taxation` is used to describe the situation that arises when the same economic transaction, item of income or capital is taxed in two or more states during the same period, but in the hands of different taxpayers. Economic double taxation will ocur if assets are attributed to different persons by the domestic law of the states involved, as, for example, when the tax law of one state attributes an item of capital to its legal owner whereas the tax law of the other state attributes the item of capital to the person in possession or economic control. Economic double taxation may also arise if, for example, alimony paid by a husband to his wife is considered income and taxed in her hands while not being allowed to be deducted as an expense by the husband in his residence state or if one state taxes a legal entity at its place of residence whereas another state disregards the legal entity and taxes its income or capital by attribuing it to a resident shareholder.
Furthermore, economic double taxation can result from conflicting ruler regarding the inclusion or deduction of positive and negative elements of income and capital as, for example, in cases of transfer pricing.
Occasionally, the term `economic double taxation` is also used to describe the taxation of a corporation’s income that is taxed initially at the corporate level and subsequently at the shareholder level.
The law of double taxation is a branch of what is commonly called `international tax law`. Traditionally, this term has been used to refer to all international as well as domestic tax provisions relating specifically to situations involving the territory of more than one state, so-called `cross-border situations`.
Klaus Vogel on Double Taxation Conventions, volume 1, Wolters Kluwer, Law & Business