Welcome

to the Annual Institutional Investor Conference lunch

Ben Vendittelli
Senior Vice President
Institutional Equity
Laurentian Bank Securities
Franois Desjardins
President & CEO
Laurentian Bank of Canada
 The Changing
Global Tax
Environment and
its Impact on
Earnings
Luc Valle Angelo Nikolakakis
Chief Strategist International Tax Services
Laurentian Bank Securities EY Law LLP / Ernst & Young LLP
Update on US Tax Reform

April 6, 2017
Trump/Republican priorities, 2017

House bill would repeal ACA taxes, premium tax credits

ACA Repeal Create advance-able, refundable tax credits; expand HSAs
White House supports; bill will go straight to Senate floor

Trump, House GOP have similar proposals on rates

Tax reform Different approaches to international taxation
Will Trump embrace border adjustability?

Trump 2/28: Congress should pass $1T plan

Infrastructure Senate Democrats propose $1T plan, closing tax loopholes
Administration plan may not come until 2018, reports say

1/30 executive order calls for 2 regs out for every new 1 in
Regulatory Fiduciary rule, Dodd-Frank have been exec order targets
reform Congress targeting regulations through Cong. Review Act

Trump calling for wall on Mexico border: $15-25b cost

Immigration 1/27 executive order on visa-issuance, refugee admission
Budget bills could include funds for border enforcement

1/23 executive order withdrew US from TPP agreement

Trade Trump may deem China a currency manipulator
Consider renegotiating NAFTA, other existing trade deals

Page 2 Update on US Tax Reform and the Impact on Canadian Companies

Tax reform: overall state of play

Trump campaign plan (new plan under construction)

15% business income rate, 15% pass-through rate
Trump Elective expensing for manufacturers with loss of interest expense deduction
Most business provisions eliminated, except for R&D Credit
10% mandatory tax on accumulated foreign earnings
Individual: 12%, 25%, and 33% rates; deductions capped at $100,000/$200,000

Republican Blueprint for tax reform

Reduced individual tax rates: 12%, 25%, and 33%
20% corporate income tax rate/25% rate for business income of pass-throughs
House Immediate expensing of capital expenditures with no interest expense deduction
Mandatory tax on accumulated foreign earnings
Territorial system of taxing future foreign earnings
Border adjustability system exempts exports while taxing imports

Senate Finance Committee

Does not have a tax reform plan
Chairman Hatch: Senate will conduct its own tax reform process and cannot be
Senate expected to just accept House bill
Hatch and other Senators have reservations about border adjustability
GOP Senators against BAT, or publicly skeptical: Hatch (R-UT), Cornyn (R-TX),
Cotton (R-AK), Perdue (R-GA), Roberts (R-KS), Moran (R-KS)

Page 3 Update on US Tax Reform and the Impact on Canadian Companies

Coalitions taking positions on BAT

More than 30 large companies

Alliance for Supports House Blueprint for setting a
Competitive competitive corporate tax rate at 20%,
Taxation establishing a modern international tax
(ACT) system, promoting investment and job
creation in the US

More than 100 companies and trade

Americans associations, predominantly retailers
Congress for
Affordable
Opposes BAT because it will increase
the cost of clothing, food, medicine, gas,
Products
and other essential items

Over 25 American businesses of diverse

sizes and industries
American Supports BAT, to level playing field for
Made US-made goods and services and
Coalition end tax-motivated shifting of
production, technology, headquarters
and jobs outside of the US

Page 4 Update on US Tax Reform and the Impact on Canadian Companies

Mechanics of BAT border adjustability
Overview

Border adjustments are a way to tax imports and refund (or credit) taxes paid on
business purchases used in the production of exports. Under the BAT, revenue from
US export sales are not taxable, and the cost of imported goods and services are not
deductible (or taxed separately).
Note: The arrows below are cash flow directional.

Purchases and expenses Sales receipts

No deduction Exempt
Import Export
US
Deductible business Taxable
Domestic Domestic

Imports into US Domestic expenses Exports out of US Domestic sales

No COGS deduction Domestic expenses No tax on revenue Pay tax on revenue

associated with imported generally deductible associated with exported associated with product
goods Includes salaries/wages, product
Cost of imported services capital expenditures,
not deductible business expenses

Page 5 Update on US Tax Reform and the Impact on Canadian Companies

Mechanics of BAT border adjustability
Example
Note: The arrows below are cash flow directional.

Purchases and expenses Sales receipts

$400 / $200 $150

Import Export
US
$200 / $400 purchases business $850
Domestic Domestic
$100 salaries and
expenses

Current system BAT

Income $ 1,000 Taxable receipts $ 850 Taxable receipts $ 850

COGS (600) COGS (200) COGS (400)
Expenses (100) Expenses (100) Expenses (100)
Taxable income $ 300 Taxable base $ 550 Taxable base $ 350
Tax rate 35% Tax rate 20% Tax rate 20%
Tax $ 105 Tax $ 110 Tax $ 70
After-tax income $ 195 After-tax income $ 190 After-tax income $ 280

Total taxes under BAT will vary depending on the magnitude and overall weighting of imported goods and services.
The higher the mix, the bigger the impact, hence, impact on cross!border supply chain could be huge

Page 6 Update on US Tax Reform and the Impact on Canadian Companies

Mechanics of BAT border adjustability
Tax Base Fragmentation The Problem

Can 1 Can 2
$80

$60 $100
($12) ($20)

US 1 US 2
$120

Page 7 Update on US Tax Reform and the Impact on Canadian Companies

Mechanics of BAT border adjustability
Tax Base Fragmentation Supply Chain Solutions

Can 1 Can 2

$20 $20
($4) ($4)

US 1 US 2
$60 $120
($0)

Page 8 Update on US Tax Reform and the Impact on Canadian Companies

Mechanics of BAT border adjustability
Tax Base Fragmentation M&A Solutions

Can 1 Can 2
$80

$60 $100
($12) ($20)

US 1 US 2
$120

Page 9 Update on US Tax Reform and the Impact on Canadian Companies

Mechanics of BAT border adjustability
Tax Base Fragmentation Direct Sale to Consumer

Can 1 Can 2
$80

$120
$60 $20
($0)
($12) ($4)
($24)

US 1 US 2

Page 10 Update on US Tax Reform and the Impact on Canadian Companies

Impact of Currency Movement
Net Importers

Current With Border With Stronger

Tax Law Adjustment U.S. Dollar

Sales $10,000 $10,000 $10,000

Imported - 5,000 - 5,000 - 4,000
Goods Imported goods
Stronger dollar decreases imported
goods costs by 20%
no longer deductible

Labor - 2,000 - 2,000 - 2,000

Profit $3,000 $3,000 $4,000

before taxes
Taxable Total $3,000 $8,000 $8,000
Corporate x 35% = x 20% = x 20% =
Tax - 1,050 - 1600 - 1600
Profit
after taxes $1,950 $1,400 $2,400

Page 11 Update on US Tax Reform and the Impact on Canadian Companies

Impact of Currency Movement
Net Exporters

Current With Border With Stronger

Tax Law Adjustment U.S. Dollar

Sales $10,000 $10,000 $8,000

Sales from exports decrease by
20% with the stronger dollar

Goods - 5,000 - 5,000 - 5,000

Labor - 2,000 - 2,000 - 2,000

Profit $3,000 $3,000 $1,000

before taxes

Corporate x 35% = No tax No tax

Tax - 1,050 0 0
Profit $1,950 $3,000 $1,000
after taxes

Page 12 Update on US Tax Reform and the Impact on Canadian Companies