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

Osgoode Hall Law Journal, Vol. 52, No. 3, pp 775-817

Osgoode Legal Studies Research Paper No. 8/2016

44 Pages Posted: 19 Oct 2015 Last revised: 19 Dec 2016

See all articles by Wei Cui

Wei Cui

University of British Columbia (UBC), Faculty of Law

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Date Written: October 19, 2015

Abstract

State-owned enterprises (SOEs) have become 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. Many countries subject their SOEs to the income tax, but economists tend to dismiss SOE taxation as superfluous. A contrary, popular belief holds that SOE taxation is necessary to ensure fair competition. This article shows that both views are mistaken and explains SOE taxation in terms of the agency problem for dividend policy. Because typical devices to give private firm managers incentives to distribute profits may not be available for SOEs, taxing SOEs becomes a mechanism to force distributions. This “forced distribution” view implies that SOEs may be highly tax-sensitive. This article analyzes the factors affecting SOE tax-sensitivity and demonstrates its consequences for international tax policy.

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

JEL Classification: G3, G00, H2, H7

Suggested Citation

Cui, Wei, Taxing State-Owned Enterprises: Understanding a Basic Institution of State Capitalism (October 19, 2015). Osgoode Hall Law Journal, Vol. 52, No. 3, pp 775-817; Osgoode Legal Studies Research Paper No. 8/2016. Available at SSRN: https://ssrn.com/abstract=2676193 or http://dx.doi.org/10.2139/ssrn.2676193

Wei Cui (Contact Author)

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

1822 East Mall
Vancouver, British Columbia V6T1Z1
Canada
6048274765 (Phone)

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