The agreement was born out of the OECD`s work on combating harmful tax practices. The lack of effective exchange of information is one of the main criteria for determining harmful tax practices. The aim of the working group was to develop a legal instrument for the effective exchange of information. The aim of this agreement is to promote international cooperation in tax matters through the exchange of information. It was developed by the OECD Global Forum Working Group on Effective Information Exchange. Many countries have tax treaties with other countries (also known as double taxation agreements or DBAs) to avoid or mitigate double taxation. Such contracts may include a number of taxes, including income taxes, inheritance tax, VAT or other taxes.  In addition to bilateral treaties, multilateral treaties also exist. For example, European Union (EU) countries are parties to a multilateral agreement on VAT under the auspices of the EU, while a joint mutual assistance treaty between the Council of Europe and the Organisation for Economic Co-operation and Development (OECD) is open to all countries.
Tax treaties tend to reduce taxes in one contracting country for residents of the other contracting country in order to reduce double taxation of the same income. The agreement is the standard for the effective exchange of information within the meaning of the OECD`s initiative on harmful tax practices. This agreement, published in April 2002, is not a binding instrument, but includes two models of bilateral agreements. A number of bilateral agreements were based on this agreement.  Many governments and organizations use standard contracts as starting points. Double taxation conventions generally follow the OECD model convention and official comments and members` comments serve as a guide for interpretation by each member state. Other relevant models include the United Nations Model Convention for contracts with developing countries and the U.S. Model Convention for U.S.-negotiated contracts. While tax treaties generally do not set a period for which business activities must be carried out on a site before reaching an MOU, most OECD Member States do not find an MOU in cases where a head office has been in existence for less than six months, without any particular circumstances.  Many contracts explicitly provide for a longer threshold, usually one year or more, for which a construction site must exist before a stable establishment is achieved.
 In addition, some contracts in which at least one party is a developing country have provisions that believe that an MOU is provided when certain activities (for example). B services) are performed for specified periods, even if there is no PE otherwise. The working group was made up of representatives from OECD Member States and MEPs from Aruba, Bermuda, Bahrain, the Cayman Islands, Cyprus, the Isle of Man, Malta, Mauritius, the Netherlands Antilles, Seychelles and San Marino. Most contracts provide mechanisms that eliminate the taxation of residents of one country by the other country where the scope or duration of service delivery is minimal, but also impose income in the country where it is not minimal. Most contracts also include special provisions for artists and athletes from one country with income in the other country, although these provisions are very different. Most contracts also include restrictions on the taxation of pensions or other old-age income.  Most contracts provide that the profits of one company (sometimes defined in the contract) of one resident are taxed in the other country only if the profits are generated by a stable establishment located in another country.