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Chart 3: Decomposition of performance of 1) S&P 500 stocks exposed to fiscal stimulus* and 2) top 50 S&P 500 stocks with the highest L12M effective tax rates, vs. rest of S&P 500 (1/31/16-1/23/17) 25% 20% 15% 10% 5% 0% Stimulus Beneficiaries S&P 500 ex-Stimulus High Effective Tax Rate S&P 500 ex-High Eff Tax Beneficiaries List Rate List mChginPE sChginEPS Performance *Stocks identified by BofAML analysts as stimulus beneficiaries in 150 stocks with exposure to the Fiscal Stimulus theme 21 Aug. 2016 Source: FactSet, BofA Merrill Lynch US Equity & US Quant Strategy Potential beneficiaries: See Table 19 at the end of this report for a screen of domestically-oriented companies with high effective tax rates which could potentially benefit from a lower corporate tax rate. Repatriation Repatriation likely under both Blueprint and Trump plans Mandatory tax on overseas profits of 8.75% under Blueprint, 10% under Trump The US currently operates under a tax system in which the domestic earnings of US corporates are taxed at the federal US corporate rate (35%) and any overseas earnings that are repatriated are taxed at this rate less a credit for foreign taxes paid on those same earnings. Many multinationals’ foreign earnings thus remain parked offshore, allowing corporations to avoid the tax hit associated with bringing them back to the US. Both Trump and the House (under Ryan) have proposed a mandatory tax of overseas earnings of US firms’ foreign subsidiaries at reduced rates, such that this cash can be brought back and put to work in the US. This differs from the 2004 repatriation tax holiday, which was optional. Under the Blueprint, accumulated overseas earnings will be subject to a transition tax of 8.75%! (for those held in cash/cash equivalents) or 3.5% (for all other holdings), with companies able to pay the tax liability over an eight-year period. This would be part of broader tax reform, where a proposed territorial tax system would exempt companies’ foreign income from US taxes and prevent future buildup of overseas profits as companies would be free to bring them home. Trump’s plan calls for a one-time deemed repatriation of overseas corporate profits at a 10% tax rate. Table 6: Blueprint vs. Trump tax plans for taxing offshore earnings of US firms’ foreign subsidiaries Plan Tax rate on accumulated overseas earnings Blueprint 8.75% for cash/cash equivalents, 3.5% of all other holdings Trump tax plan 10% Source: donaldjtrump.com, abetterway.speaker.gov The Tax Policy Center estimates that a repatriation tax holiday would generate approximately $150bn in tax receipts under Trump’s plan (over 10 years) and $140bn ' Note: The effective tax rates of 8.75% and 3.5% under the Blueprint are based on an allowable deduction of 75% (for deferred earnings held in cash/liquid assets) or 90% (for the non-cash portion), with the remainder taxed at the US corporate tax rate, Le. 35%(1-75%) = 8.75% and 35%(1-90%) = 3.5%. This methodology was proposed by Dave Camp’s (former chairman of the House Committee on Ways and Means) Tax Reform Act of 2014. : , Bankof America 6 Equity Strategy Focus Point | 29 January 2017 Merrill Lynch HOUSE_OVERSIGHT_023074