Evidence on Aggressive Tax Avoidance by German State-Owned Enterprises and its Driving Factors

Abstract

This paper investigates the tax avoidance behaviour of German state-owned enterprises (SOEs). Based on firm-specific data of state-owned and private firms from the period between 2004 and 2013 obtained from the Orbis database and public share reports (Beteiligungsberichte), it employs propensity score matching to analyse whether SOEs differ from private firms in their use of aggressive tax planning. Furthermore, a range of theories stemming from the Political Science and Economics literature that could explain SOEs’ tax planning behaviour are tested using fixed and random effects regressions. Results suggest that German SOEs engage in aggressive tax avoidance. This tax avoidance is positively affected by the total public share, the number of public shareholders and the relative power of the biggest private shareholder within the SOE. Market competition as well as the governing party coalition of the public owner cannot explain SOEs’ aggressive tax planning behaviour.