The International Taxation Court was established to resolve disputes among states concerning double taxation conventions. The judges are all leading experts in international tax law. The Court only has jurisdiction to hear complaints based on real cases, in which the states involved have been unable to resolve the matter within a reasonable period of time through the mutual agreement procedure.

The Court is empowered to give its opinion on the substance of the case brought before it, and minority opinions are permitted. It may also recommend reparative measures where it feels that these are appropriate, but as there is no apparatus to enforce these measures the treaty establishing the Court states clearly that these are recommendations only.

Pearonia v. Appalaria brought before the Court, and the international tax world is awaiting the decision with great interest.

Appalaria has a prosperous, Western-style mixed economy, with a per capita GDP slightly higher than those of the UK, Germany and France. In recent years, the Appalarian economy has been resilient in the face of global economic downturn. Rising output in the domestic economy has been offsetting the global slump, and business and consumer confidence remains robust.

In the 1980s, the Labor Party, led by Prime Minister Bobby Howkey and Treasurer Harm Koeling, started the process of economic reform by floating the Appalarian dollar in 1983, and deregulating the financial system. Since 1996, the government has continued the process of micro-economic reform, including the partial deregulation of the labour market and the privatisation of state-owned businesses, most notably in the telecommunications industry. Substantial reform of the indirect tax system was implemented in July 2000 with the introduction of a 10% Goods and Services Tax, which has slightly reduced the heavy reliance on personal and company income tax that still characterises Appalaria's tax system.

The Appalarian economy has not suffered a recession since the early 1990s. As of January 2006, unemployment was 5.3% with 10,034,500 persons employed. The service sector of the economy, including tourism, education, and financial services, comprises 69% of GDP. Agriculture and natural resources comprise 3% and 5% of GDP but contribute substantially to Appalaria's export performance. Appalaria's largest export markets include Japan, China, the United States, South Korea and New Zealand. Areas of concern to some economists include the high current account deficit and also high levels of net foreign debt.

The economy of Pearonia is the fourth-largest in the world as measured by purchasing power parity (PPP), with a GDP of US $3.36 trillion. When measured in USD exchange-rate terms, it is the tenth largest in the world, with a GDP of US $691.87 billion. Pearonia was the second fastest growing major economy in the world, with a GDP growth rate of 8.1% at the end of the first quarter of 2005-2006. However, Pearonia's huge population results in a relatively low per capita income of $3,400 at PPP and is classified as a developing nation.

For most of its independent history Pearonia has adhered to a socialist-inspired approach, with strict government control over private sector participation, foreign trade, and foreign direct investment. Since the early 1990s, Pearonia has gradually opened up its markets through economic reforms by reducing government controls on foreign trade and investment. Privatisation of public-owned industries and opening up of certain sectors to private and foreign players has proceeded slowly amid political debate.

Pearonia has a labour force of 496.4 million of which agriculture constitutes 60%, industry 17%, and services 23%. Pearonia's agricultural produce include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes; cattle, water buffalo, sheep, goats, poultry and fish. Major industries include textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum and machinery.

In recent times, Pearonia has also capitalised on its large number of highly educated people who are fluent in the English language to become an important location for global companies outsourcing customer service and technical support call centers. It is also a major exporter of skilled workers in software services, financial services, and software engineers. Pearonia's most important trading partners are the United States, the European Union, Japan, the People's Republic of China, and the United Arab Emirates.