Do ADRs not solve this problem?
You are 100% correct that to the extent that ADRs stick to the negotiated tax treaties, you don't lose out on foreign tax credit, but you also don't get to keep all of the dividend like you would a US company. It comes down to opportunity cost at that point. For example, if you held Nestle ADR in a taxable account, you would get charged 15% dividend and then not owe federal tax (unless if you were in the 20% investment tax bracket). If you kept it in a tax deferred account, you just have withholdings of 15% dividend tax. But say you owned both Nestle and Hershey's, well, if you placed Hershey's in taxable and Nestle's in tax deferred, you'd get taxed on dividends for both, but if Nestle's was in taxable and Hershey's was in tax deferred, you'd only pay the 15% on Nestle's dividend - make sense?