Tax inversions are threatening to be a campaign issue in the mid-term elections.
A trend in the past several years (if not longer) is for US-based multinationals to buy smaller rivals in tax havens and re-incorporating in the low-tax jurisdiction.
The practice is surging in popularity with pharma companies leading the charge. The Obama administration is highlighting the practice and seeks to make it a wedge issue. Republicans have yet to stake out a clear position but have indicated they’re either against it or see it as a part of broader tax reform.
One Republican to watch is Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee and most likely to take over if Republicans win the Senate. He’s on record with some negative comments about changes but has opened the door to some short term measures.
FX traders will want to keep an eye on how much of an issue it becomes. If it becomes a major issue, companies could attempt to complete deals and move capital outside the country ahead of new rules. Overall, the flows are likely to be modest but the issue could could put some minor pressure on the dollar in the months ahead.