Profit shifting, not tariffs, is rewiring currency flows
Where multinationals book their profits now determines which currencies absorb the capital — and the OECD's 15% minimum tax is pushing that geography around.
The Tax Line That Becomes a Currency Line
In 2021, 136 countries signed onto a framework to stop multinationals from parking profits in Bermuda and Ireland. Four years later, the OECD's Pillar Two rules — a 15% global minimum corporate tax — are in force across most of the European Union, the UK, Japan, South Korea, and Canada. The US still hasn't fully implemented its side.
That gap matters for currency markets in a way almost nobody trading FX on a Tuesday afternoon is pricing in.
Here's the mechanism. When a US tech company books €400 million of profit through a Dublin subsidiary, that profit sits as euro-denominated earnings until it's either reinvested or repatriated. Move the booking entity to Singapore, and suddenly you've shifted the currency of that corporate cash pile. Multiply across thousands of companies and you get a slow bleed in one currency's deposit base and a slow build in another's.
The Bank for International Settlements has flagged this in its quarterly reviews for years. Cross-border bank claims don't move in neat tariff-shaped patterns. They move with tax law.
The Merz Bet Is Unwinding
Wolfgang Münchau, who runs the EuroBriefing newsletter, made a blunt point in late 2025: the investment flows that rushed from the US into Europe after Trump's tariffs and Friedrich Merz's election as German Chancellor have started reversing. US investors, he wrote, are waking up to "political perma-gridlock" in Europe, while European investors are concluding that AI-driven macro gains are more likely to land in the US and China.
That's not a sentiment story. It's a flow story.
Eurozone portfolio investment from the US spiked in the second half of 2025. By early 2026, monthly ECB data showed the pace had cooled sharply. The euro, which had climbed past $1.12 in mid-2025 on the Merz optimism, gave most of it back.
The tax angle compounds this. Germany's implementation of Pillar Two raised effective tax rates on US multinationals' German subsidiaries. Some of those companies responded by shifting booking entities — often to Singapore or the UAE — which means the euro exposure on their balance sheets shrank. Less euro exposure means less natural hedging demand for euros. Less hedging demand means a thinner bid.
What the Plaza Accord Actually Teaches
CrossBorder Capital, the London research house, drew a comparison in 2024 that's worth revisiting: the current shift in risk exposure looks less like a liquidity reversal and more like the early stages of capital moving out of the dollar — "think 1985 Plaza Accord."
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The Plaza Accord is the obvious historical reference. In September 1985, the US, Japan, West Germany, France, and the UK agreed to depreciate the dollar against the yen and the Deutsche Mark. The dollar fell roughly 40% against the yen over the next two years. But the part people forget: the Accord worked because capital was already looking for a reason to leave. The policy just gave it permission.
Today's version is messier. There's no coordinated central bank agreement. But there's a tax regime change, a tariff regime change, and a genuine question about whether the $32 trillion in foreign-held US assets needs to be rebalanced.
Gynix Vertex, an FX analyst account, noted in October that foreign central banks selling Treasuries to defend their currencies is already showing up in weaker US bond demand. That's not a Plaza Accord. But it's the same plumbing.
The CAD Trade Nobody Framed as a Tax Trade
Leevin, a real estate analyst, made a point in October about the Canadian dollar: a weaker CAD makes US, Asian, and European buyers' purchases of Canadian office and industrial real estate cheaper, and much of that incoming foreign capital targets existing corporate M&A.
That's a currency story. It's also a tax story. Canada's corporate tax rate sits at 26.5% combined federal-provincial — higher than the US effective rate for many multinationals, and higher than Ireland's 15%. When the CAD weakens, the after-tax return on Canadian assets improves in foreign currency terms. The tax and the currency multiply.
So you get what @bleeshy noted: "profit shifting and tax competition end up shaping where capital actually sits, not just where it's taxed. that quietly feeds into currency flows too, even though nobody frames it that way."
They should.
Three Numbers to Watch
First, watch the OECD's Pillar Two implementation scorecard. As of early 2026, roughly 45 jurisdictions have enacted the rules. Every additional country that signs on pushes another slice of multinational profit booking out of low-tax havens — and into whatever currency those new jurisdictions use.
Second, watch the ECB's monthly portfolio investment data. The US-to-eurozone flow reversal that Münchau flagged is the single cleanest signal of whether the Merz trade is truly dead or just sleeping.
Third, watch the US Treasury's TIC data — the monthly snapshot of foreign holdings of US securities. If foreign central banks are trimming Treasuries to defend their own currencies, that shows up here first, before it shows up in the dollar index.
None of this is a crash thesis. It's slower than that. But capital doesn't move because of speeches. It moves because of after-tax returns, and right now the after-tax return map is being redrawn by tax authorities in Brussels, Seoul, and Riyadh — not by tariff announcements in Washington.
The currency flows follow. They always do.
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