This article challenges the orthodox view that the benefit (or exchange) theory provides the intellectual foundation of international taxation and that the economic allegiance theory represents a special version of the benefit principle. Rather, according to transaction cost economics (TCE), international taxation reflects the highly relational nature of international investments, as measured by (i) the duration of the taxpayer’s engagement with the relevant states; (ii) the uncertainty of benefits; and (iii) the asset specificity of the engagement. This relational perspective is reflected in the concept of economic allegiance, which depicts the taxpayer’s relational engagement with relevant states, either through wealth production (source jurisdiction) or wealth consumption (residence jurisdiction). This new construction of the economic allegiance theory may provide a holist analytical framework for international taxation and inform the debates of various treaty issues in a consistent way.