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3.3. Potential Exclusion from Treaty Benefits for Failure to Meet Residence Test

Currently, Costa Rica has only one tax treaty in force with Spain. Two provisions of this treaty  are relevant with respect to limitation on treaty benefits:

  • Article 3 of the DTA establishes that residents of a State liable to tax  only on their source income are not deemed to be residents for treaty purposes.
  • According to DTA´s Protocol, as long as Costa Rica maintains a territorial tax system, when the right to tax an item of income is attributed to Costa Rica under the treaty but the relevant item of income is not subject to tax in Costa Rica, then the right to tax shifts back to Spain which may tax as if no treaty existed.