An army colonel admitted at the tribunal that other soldiers at the pub where the attack took place shared the same racist views.
Turkish-born Timur Kalayci, 28, who emigrated to Britain with his parents aged 11 months, had been drinking with fellow off-duty soldiers in a pub in October 2000.
A lance corporal yelled racist abuse at him before headbutting him in the face, the tribunal was told.
Col Clive ‘Chip' Chapman, giving evidence at the hearing, said the lance corporal had felt aggressive towards Mr Kalayci.
Asked if the lance corporal's racist views were shared by many of the other B company soldiers at the pub, Col Chapman replied: "Yes."
Colonel Chapman said he subsequently ordered an investigation to find if there was a problem with racism in B company, although the inquiry found there was not.
The tribunal heard the lance corporal was demoted to private as punishment for his attack on Mr Kalayci, who joined 2 Para in 1998.
In an earlier statement Major Peter Flynn, of the Parachute Regiment, told how he had helped investigate allegations made by Mr Kalayci.
Major Flynn said: "During the course of my interviews it had become clear that private Kalayci might have been attempting to incite a reaction on a number of occasions.
"It appeared that Private Kalayci had a tendency to stare at soldiers for protracted periods and await a reaction."
Mr Kalayci sat trembling and fighting back the tears as the tribunal heard details of how his dream of joining the Parachute Regiment had turned into a nightmare.
When he joined the prestigious regiment he was based at barracks in Aldershot but moved to Colchester when the Paras were relocated.
In an earlier statement Mr Kalayci recalled how a private told him: "In South Africa I loved raping black women. If I don't rape one soon I'm going to rape Kalayci."
In March 2001 Mr Kalayci's GP advised him not to return to barracks because of depression and 12 days later he was posted absent without leave.
Mr Kalayci, of Hackney, East London, had signed up to the army for 22 years but was medically discharged in September this year.
He told the tribunal: "Having grown up and lived here all my life, I regard it as an obligation to serve my country. I was proud to be a representative of Britain's most elite regiment.
"I committed 22 years of my life to Queen and country, yet I am now helpless in the comfort of anti-depressants and sleeping tablets."
Mr Kalayci, 28, is suing the Ministry of Defence for racial discrimination, claiming he suffered a catalogue of racist torture and abuse from other soldiers.
He claims one of his tormentors twice tried to run him over in a car while a colour sergeant in the Red Berets held a knife at his throat warning him never to grow a beard.
At one point Mr Kalayci felt so unsafe in his barracks he went to live in a mosque for sanctuary.
The tribunal continues.