This chapter describes the key characteristics of cross-border taxation. Most countries around the world operate hybrid systems involving the taxation of their residents (usually on worldwide income) and non-residents on income which has a source in their jurisdiction. In order to lay some foundational groundwork for the later examination of the taxation of digitalised business, the history of the original 1920s compromise is discussed in order to establish the arbitrary nature of the framework and, in part, to try and understand why it has been so outstandingly successful for such a long period of time.The next part of the chapter looks at the fundamental question of how we justify taxation. The particular focus, in the context of cross-border taxation and trade, is on the taxation of non-residents doing business in a country. The benefit theory suggests that a modification to the 1920s compromise can be justified to expand the taxing rights of multinational enterprises in the digital age. This is also supported by the absence of any constraints in domestic source taxation. But in the age of base erosion and profits shifting, can the threats of the digital economy be ignored?