The tax obligations of any individual or company and especially those arising from international business activities can often prove to be rather complicated, reason being that more than one country is involved, which is generally the country where the business is located, or place of residence in the case of a person and the country where the business transaction, industry or taxable activity is carried out.

The interior fiscal regulations of the countries involved are insufficient to define the tax obligations of companies that undergo taxable business activities abroad.

Spanish fiscal law has very specific regulations for each kind of tax. In the case of income tax, both on persons and companies, fiscal obligations are clearly defined by two circumstances; the location or place of residence of the company or person and the location or place where the taxable income is generated. In principle, all residents in Spain are liable for tax on their worldwide income obtained from any country. Furthermore, all persons obtaining income in Spain are liable for taxation, even if they reside in another country.

To give an example, a common mistake of many British citizens owning property and receiving income in Spain, is to assume that they do not have to declare this profit, when they are indeed liable for tax in Spain on their income received, even though any tax paid is then deductible in the taxpayer's own country of residence.

Although interior tax regulations of each country are indeed vital to define each taxpayer's obligations, they may be affected by the dispositions of international treaties between countries. Double taxation treaties signed by Spain are very specific regarding the determination of residence of a person and also in cases where there tax obligations are divided.

The existence of two kinds of regulations, which is to say, the internal laws of a given country and the provisions laid down by an international treaty, can sometimes give rise to doubts as to which is more important. Although any fiscal regulations of an international character are of preferential application, their main object of eradicating double taxation keeps them in a secondary place with regards to the internal fiscal laws. For this reason each case needs to be studied individually in order to find the most beneficial solution for the taxpayer.

The four main objects of treaties to prevent double taxation are:

1. To standardise tax regulations between fiscal jurisdictions such as, for example, the definition of the term "permanent establishment", as if this was defined differently in each country it would lead to double taxation, both at the source of the taxable activity and at the taxpayer's place of residence of the taxpayer.

2. To promote the exchange of fiscal information between countries for a more effective application of fiscal laws and to avoid tax evasion.

3. To avoid any abusive application of the treaties themselves, as the countries that adopted the treaties have the option not to grant benefits conferred by the treaties when they consider the fundamental object of the transactions or agreement to be the obtention of undue tax benefits from the treaty.

4. To avoid double taxation by specifying in the treaties that both countries should offer verification of the taxes paid abroad upon calculating the tax in the country of residence of the taxpayer.

There are many cases of income generated in Spain by non residents that is neither declared in Spain nor in the country where they are resident. It must be said that there do now indeed exist effective means of exchange of information between European countries, created for the purpose of eradicating tax evasion.