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Table 15: Sensitivity of a company’s domestic earnings Net exports (% of COGS} Tax rate -100% -50% 50% 15% 18% 20% 23% 25% 28% 30% 33% 35% Source: BofAML US Equity & Quant Strategy *We note that itis unlikely that a company can be a 100% net exporter and have any domestic earnings to begin with. Note: We assume a company with a 40% gross margin, operating expenses are 20% of sales and an initial tax rate of 35% 100%* Industry screen: Below we highlight industries which could potentially benefit most / be hurt most by the BAT. Chart 15: Industry EPS impact from border Chart 14: Industry EPS impact from border adjustment tax (25% rate) Chart 13: Industry EPS impact from border adjustment tax (20% rate) adjustment tax (15% rate) -100% 50% 0% 50% -150% -100% -50% 0% 50% -200% -150% -100% -50% 0% 50% Industrial Conglomerates 5% Industrial Conglomerates 7% Industrial Conglomerates 8% Life Sciences Tools & Svcs 4% Chemicals 5% Chemicals 6% Chemicals 4% Life Sciences Tools & Svcs 5% Life Sciences Tools & Svcs 6% Household Products 3% Household Products 4% Machinery 5% Machinery 3% Machinery 4% Household Products 5% Health Care Technology 2% Health Care Technology 3% Health Care Technology 4% Electrical Equipment 2% Electrical Equipment 3% Electrical Equipment 4% Media 2% Media 2% Media 3% IT Sves 1% IT Sves 2% IT Sves 2% Energy Equipment & Svcs 1% Energy Equipment & Sves 1% Energy Equipment & Svcs 2% Biotechnology -1% Biotechnology 1% Biotechnology -2% Semiconductors & Sem Equip -2% Semiconductors & Sem Equip -2% Semiconductors & Sem Equip -3% Software -2% Software -3% Software -3% Pharmaceuticals -2% Pharmaceuticals -3% Pharmaceuticals 4% Trading Cos & Distributors -3% Trading Cos & Distributors -3% Trading Cos & Distributors 4% Health Care Equipment &... -4% Health Care Equipment &... -5% Health Care Equipment &... 6% Metals & Mining 5% Metals & Mining 7% Electronic Equip Instr &... 8% Building Products 5% Building Products 7% Metals & Mining -9% Electronic Equip Instr &... 6% Electronic Equip Instr &... 8% Building Products 0% Construction Materials 6% Construction Materials 0% Construction Materials -11% Oil Gas & Consumable Fuels 9% Oil Gas & Consumable Fuels -12% Tech Hardware -14% Communications Equipment -9% Tech Hardware -12% Oil Gas & Consumable Fuels -15% Tech Hardware 0% Communications Equipment -12% Communications Equipment 15% Health Care Providers & Svcs -11% Health Care Providers & Svcs -14% Health Care Providers & Svcs -18% Household Durables -12% Household Durables -16% Household Durables -20% Auto Components -20% Auto Components -21% Auto Components -21% Leisure Products -30% Leisure Products 40% Leisure Products 50% Specialty Retail -33% Specialty Retail 45% Specialty Retail 56% Distributors -38% Distributors 51% Distributors 64% Textiles Apparel & Luxury Goods -30% Textiles Apparel & Luxury Goods 52% Textiles Apparel & Luxury Goods 65% Internet & Direct Mktg Retail 41% Internet & Direct Mktg Retail 54% Internet & Direct Mktg Retail 68% Automobiles 41% Automobiles 55% Automobiles -69% Muttiline Retail 49% Multiline Retail 65% Muttiline Retail 81% Food & Staples Retailing -74% Food & Staples Retailing -99% Food & Staples Retailing -124% m 15% tax rate 20% tax rate 25% tax rate Source: BofAML US Equity & Quant Strategy, FactSet, S&P Source: BofAML US Equity & Quant Strategy, FactSet, S&P Source: BofAML US Equity & Quant Strategy, FactSet, S&P Closing loopholes Both Trump and the Blueprint proposal suggest getting rid of special-interest deductions and credits that distort capital allocation decisions. The table below lists the 25 biggest US corporate tax breaks. The #1 and #3 “tax breaks” are the deferral of foreign income and certain foreign financial income, but these would become irrelevant if the US moves to a territorial tax system, as is being proposed by the Blueprint plan. Exempting corporations from paying US taxes on foreign income would put the US in Bankof America 2 Equity Strategy Focus Point | 29 January 2017 15 Merrill Lynch HOUSE_OVERSIGHT_023083