Foreign tax credits cannot be claimed for taxes that another country might waive if a company can prove that it will not be able to credit them against its US taxes | Norton Rose Fulbright
Costa Rica collects withholding taxes on dividends, interest and other types of income leaving Costa Rica. However, by law, the tax authorities can waive all or part of the withholding tax in cases where the recipient of the income can prove that it will not receive credit for the taxes in its home country.
The IRS ruled in late January that foreign tax credits may not be claimed for Costa Rican withholding taxes in the United States. IRS regulations deny foreign tax credits for taxes that may or may not be levied depending on whether the taxpayer can get credit in the United States for having paid them.
The ruling is Revenue Ruling 2003-8. It is a reminder to check on due diligence whether the tax authorities in another country have the power to waive any taxes.