Taxing State-Owned Enterprises: Understanding a Basic Institution of State Capitalism

Forthcoming in Osgoode Hall Law Journal

34 Pages Posted: 27 May 2009 Last revised: 5 Jun 2015

See all articles by Wei Cui

Wei Cui

University of British Columbia (UBC), Faculty of Law

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2012


State-owned enterprises (SOEs) from emerging economies and resource-rich countries have been increasingly active investors in global markets in the last decade, challenging policymakers in Canada and other OECD countries to confront the logic of “state capitalism”. This article develops a novel theory of the income taxation of SOEs and explores its implications for international tax policy. Many countries subject their SOEs to income taxes, but traditional public finance theorists tend to dismiss SOE taxation as superfluous. A popular, contrary belief holds that SOE taxation is necessary to ensure fair competition. This Article shows that both views are mistaken, and suggests an explanation of SOE taxation in terms of the divergent interests between SOE managers and shareholders and the problem these create for dividend policy. The usual solutions for mitigating the agency problem in dividend policy for private firms may not be available for SOEs, and taxing SOEs becomes an alternative mechanism for forcing distributions. The “forced distribution” view of SOE taxation importantly implies that SOEs may be highly tax sensitive. I discuss the factors affecting SOE tax sensitivity using a simple analytic model, and demonstrate its consequences for international tax policies in both countries with strong SOE presence and those facing SOE investments.

Keywords: state-owned enterprises, state capitalism, tax and corporate governance, dividend policy, tax and development

JEL Classification: H22, H25, H32, H82, K34, L32, O23, P35, P43

Suggested Citation

Cui, Wei, Taxing State-Owned Enterprises: Understanding a Basic Institution of State Capitalism (September 1, 2012). Forthcoming in Osgoode Hall Law Journal, Available at SSRN: or

Wei Cui (Contact Author)

University of British Columbia (UBC), Faculty of Law ( email )

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Vancouver, BC V6T1Z1

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