When levying taxes, national tax authorities usually practise little restraint with respect to other states, unless a tax treaty exists. If several states claim the right to taxation in respect of cross-border transactions there is a risk of double taxation which poses a formidable obstacle to international trade and investment.

For taxation purposes, associated companies have to arrange their cross-border transactions with each other in a way that corresponds with market conditions, thereby observing the so-called ‘arm's length principle’.