Costa Rica repeals soak-up tax, removing a barrier to creditability for US taxpayers

December 2012

Overview

In Rev. Rul. 2003-8, the IRS ruled that the withholding taxes referred to in Article 61 of the Costa Rican income tax law are noncreditable soak-up taxes under IRC sections 901 and 903. Costa Rica repealed Article 61 on December 11, 2012. For US multinational companies, this development should remove the obstacle of soak-up tax treatment to the ability to credit the Costa Rican withholding tax.

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