The clause is one of the total 18 very restrictive tax treaties that hamper the government's power to tax global companies doing business in Bangladesh, unfairly limiting the collection of tax revenue, said the international non-governmental organisation.
Bangladesh has the highest number of very restrictive treaties with wealthier countries in the ActionAid tax treaty dataset.
Thirty countries have negotiated dividend tax breaks for direct investment in treaties with Bangladesh, each making small savings for its multinationals.
ActionAid estimates that these small cuts add up to $85 million given away by Bangladesh in 2013 alone, due to a single rule in the country's tax treaties.
“We estimate, for example, that restrictions on Bangladesh's ability to levy withholding taxes on dividend payments result in a revenue loss of $85 million annually.”
This is especially striking as the country has 66 million people living in extreme poverty, or on less than $1.9 a day, said the report.
“With an annual total health expenditure of approximately $25 per capita, remedying this alone could pay for health services for 3.4 million people,” the Johannesburg-based organisation said in its report styled “Mistreated”.
It is part of a global phenomenon which sees poorer countries losing billions in revenue because of the treaties that stop them taxing multinational companies.
The report is based on ground breaking research that for the first time examined more than 500 international tax treaties, revealing which ones affect the poorer countries' ability to raise taxes on multinational companies.
Treaties often ensure that corporate cash flows from poorer to richer countries untaxed, worsening global inequality and poverty, which imposes the highest costs on women and children in the form of lost funding for key public services like hospitals and schools.
“All national resources that can be mobilised behind the fight for development should be explored. Outdated and unfair treaties make it possible for multinational companies to potentially significantly reduce the tax they pay in lower income countries,” said Farah Kabir, country director of ActionAid Bangladesh.
Women and children in poverty pay the price when crumbling public services like schools and hospitals are starved of possible funding.
“It is time for our government to make tax fair and urgently revise very restrictive treaties that we have. Multinational companies should be paying their fair share in Bangladesh.”
Tax revenues collected by Bangladesh are among the smallest in the world in proportion to the size of its economy.
Many tax treaties make it possible for multinational companies operating in lower income countries to significantly reduce corporate tax by moving money out of the country through dividends, royalty or interest payments which are subject to low tax rates capped in tax treaties, the report said.
Tax treaties that lower income countries have signed with members of the Organisation for Economic Cooperation and Development, a club of rich countries, take away more taxing rights than those with non-OECD countries, and worryingly, the deals struck with OECD countries are getting worse, said the report.
The UK and Italy are tied as the countries that have entered into the highest number of very restrictive tax treaties with African and Asian countries since the 1970s, followed by Germany. China, Tunisia and Mauritius also have a rapidly growing number of very restrictive treaties with some of the world's poorest countries.
For many lower income countries, raising more revenue from taxing multinational companies could help fund lasting change by improving chronically underfunded schools and hospitals, it said.
ActionAid is calling on governments to reconsider the restrictive treaties to ensure multinational companies pay their fair share of tax in poorer countries.
The charity is also urging companies to increase transparency and publish details of lobbying activities relating to tax treaties
