International direct taxation is also both excruciatingly complex and fundamentally arbitrary. It is thus in double trouble- a potential victim of irrationality and technological advancement. Although the path of international direct taxation law is directed by three main drivers: tax sovereignty concerns, practical administrative concerns, and guiding international tax principles , but there are the five strategic tax rules that apply to international transactions which are similar in most of the countries. They rest upon the use of a relatively small number of concepts: (1) the choice of specific principles (e.g., residence and source-based taxation) for governing the tax treatments of both domestic source income accruing to non-residents and foreign-source income accruing to residents; (2) the use of the concept of permanent establishment in establishing the economic nexus required to assert jurisdiction to tax business profits; (3) the application of alternative methods (e.g., tax credits or exemptions) for effecting (juridical) double-taxation relief; (4) the formulation of appropriate provisions (e.g., inter-company transfer pricing rules for multinationals) for the effective implementation of the chosen tax regime; and, finally, (5) the negotiation of bilateral (and sometimes multilateral) tax treaties to alleviate the undesirable effects of non harmonized tax policies among countries.

In this article I will analyse the challenges posed by the e-commerce to traditional source- and residence-based taxation systems (both legal and administrative). Particularly, I intend to illustrate the need for reassessment of the first two concepts. I will argue that all the controversies relating to international taxation are about interpretations of the provisions of domestic law and the treaties and conventions concerning double taxation avoidance.