Electronic Tax Form Validator (eTFV)

In Financial Services

EY’s innovative approach to tax form validation operates on a modern technology platform that provides client-side electronic form validation, operator-focused efficiency, and high-quality business logic based on expertise from industry experienced tax professionals.

Case Study
The better the question. The better the answer. The better the world works.
Case Study

Case study: How collaborating on tax operations powers a focus on strategy and growth

The multibillion-dollar acquisition of Scripps by Discovery enabled them to reimagine the tax function and create a more adaptive enterprise.

Case Study
The better the question. The better the answer. The better the world works.
Case Study

If you always follow the script, how will you ever change the story?

See how the world’s largest non-scripted, factual media company changed its trajectory.

When Discovery Communications identified an opportunity to reimagine its tax function, Todd Davis, EVP and Senior Tax Counsel, looked to Ernst & Young LLP and other member firms (“EY”) as a co-creator. Discovery’s acquisition of Scripps, which would make it the largest non-scripted, factual media company in the world, was the spark and catalyst. Rather than undergoing a traditional, post-merger combination of tax functions, with the dislocation and potential relocation that such a change requires, Discovery saw an opportunity. Here was a chance to create a dynamic, agile tax function fit for now, next and beyond. EY’s capabilities, including its state-of-the-art Global Tax Platform (GTP) that helps businesses future-proof their operations, was critical.

The timing was important. The wider role of tax functions is evolving. Regulators are ever asking for more by expanding the scope of compliance requirements and shifting policy and regulation. At the same time technology is changing the rules of the game, digitizing processes and enabling companies to transform their processes, analysis and reporting.

Davis recognized the need for change and the opportunity, but he had worked hard to turn Discovery’s tax function into a high-performing, well-oiled machine and was skeptical about changes that might be disruptive or derail progress. “We’d seen a trend for companies to enter co-sourcing agreements, plugging in to the global resources of larger firms,” says Todd Davis, Executive Vice President – Senior Tax Counsel, Discovery, Inc. “I was a little skeptical. I wanted to make sure this worked for us. We needed a different mindset.” The EY Tax and Finance Operate (TFO) solution is a technology-driven co-sourcing arrangement that helps multinational organizations improve operational effectiveness and efficiencies through innovating the tax operating model and strategic visioning. 

We’d seen a trend for companies to enter co-sourcing agreements, plugging in to the global resources of larger firms. I was a little skeptical. I wanted to make sure this worked for us. We needed a different mindset.
Todd Davis
Executive Vice President – Senior Tax Counsel, Discovery, Inc.
Businesswoman talking to colleagues in video conference
Case Study
The better the question. The better the answer. The better the world works.
Case Study

A true collaboration

A co-sourcing arrangement that addresses complex compliance obligations, which enables more time spent on high value activities.

As a co-sourcing deal this is a true collaboration between Discovery and EY. There is transparency, openness, honesty and collaboration on both sides. Clear lines of communication enable the model to adapt and evolve, but remain relevant to each party.

The basis of the TFO arrangement includes the following:

  1. About three-quarters of Discovery’s tax headcount along with three-quarters of its tax functions were transferred to EY. The arrangement allows Discovery’s tax professionals to retain responsibility for strategic activities and other higher value tasks.
  2. Most of this work is geared around preparing all of Discovery’s compliance and reporting globally and using the EY network of professionals across our member firms and the GTP. EY is also helping Discovery resolve controversies, M&A, transfer pricing, tax modelling and advising on international tax matters.
  3. EY assists with redesigning Discovery’s existing processes, working alongside Global Delivery Services.

Faced by wide-ranging changes, Discovery was keen to ensure that its geographically dispersed tax team still felt connected to the business and could work effectively with the rest of the finance team. In many ways, it’s the same question that enterprises have needed to deal with as a consequence of the COVID-19 pandemic. Discovery’s tax function was ahead of the curve.

“We’ve worked hard, with a core team here at Discovery, day by day, to foster strong connections,” Davis says. It’s been a conscious effort to create a one-team mindset.”

Discovery addressed any problems that might arise from a remote workforce through a series of simple, but effective steps, all of which ensure that the tax team feels a part of Discovery and works seamlessly alongside it. For example, the EY team is involved in regular communications and, the wider team’s news flow and participates in meetings. EY team leaders also have Discovery email addresses so that people at Discovery feel as if they’re working with colleagues, not consultants.

We’ve worked hard, with a core team here at Discovery, day by day, to foster strong connections. It’s been a conscious effort to create a one-team mindset.
Todd Davis
Executive Vice President – Senior Tax Counsel, Discovery, Inc.
Steadicam man working on stage
Case Study
The better the question. The better the answer. The better the world works.
Case Study

An adaptive digital enterprise

The standardization of processes, better training for the tax team, and the ability to bring new technology are realized.

The Discovery TFO began as a sprint with the Scripps transaction as the catalyst, but it has now become a model that evolves and adapts according to the needs of the enterprise. In the beginning, emphasis was on setting up the new model with the most amount of continuity and the least amount of disruption.

“We were working to a highly compressed timeframe,” Davis explains. “We had six weeks to pull this together.”

Once that transition was managed, the new model freed up time for tax leaders who remained at Discovery. Their attention shifted from day-to-day management of people and processes to addressing strategic questions that help the enterprise adapt, grow and ultimately add shareholder value.

As the EY team understood the skillsets and responsibilities of Discovery’s tax team, they asked them to challenge existing practices and to evolve their ways of working. As such the model has evolved, albeit in tandem with Discovery. Some of the key levers, which are guiding principles underpinning TFO include:

  1. Access to experience: Augmenting Discovery’s in-house capability with EY subject-matter professionals as and when required. For example, strengthening key areas such as tax accounting by bringing a new, experienced member to the team to work alongside the core parts of that function that remained at Discovery.
  2. Automation and digitization of the tax function: Leveraging EY scale to make the kind of technology investments that were impractical at Discovery, including migration of the whole team onto the EY state-of-the-art Global Tax Platform via Microsoft Azure, a scalable, enterprise cloud platform.
  3. Ongoing training and support: Taking the strengths of the Discovery team and supplementing through leading-class training in the latest processes, approaches and requirements. Raising skillsets and experience across the team, but also making individuals feel that Discovery is investing in them.
We were working to a highly compressed time frame. We had six weeks to pull this together.
Todd Davis
Executive Vice President – Senior Tax Counsel, Discovery, Inc.

From strength to strength

Discovery’s tax team continues to evolve in collaboration with EY. This has been recognized internally by Discovery’s executive leadership and independently identified as a strength of the business.

Why EY

"We’ve created a team with a single mindset. As good as our in-house team was, we’re now seeing, with EY, that we’re able to go deeper and further with our analysis than we ever thought possible," Davis says.

The EY team's relationships, approach to talent, history and proven record with Discovery, and our TFO experience, were the key attributes for this win. And our strong relationship with the EVP and Senior Tax Counsel was critical.

Our message to the client was clear. The TFO deal assisted in the standardization of processes, better training for the tax team, and the ability to bring new technology to the tax function, as well as recommendations for efficiencies.

We’ve created a team with a single mindset. As good as our in-house team was, we’re now seeing, with EY teams, that we’re able to go deeper and further with our analysis than we ever thought possible.
Todd Davis
Executive Vice President – Senior Tax Counsel, Discovery, Inc.
Silhouette of people working in big production studio

What EY can do for you

In recent years, tax authorities have sought to boost revenues by focusing on the gap between anticipated tax revenues and the amounts actually collected. This has created new compliance challenges for US and non-US financial institutions, and for individuals or entities paying or earning income outside their country of residence.

The implementation of FATCA in 2014 made documentation requirements more difficult for US financial institutions, which have been required to document their foreign payees for over 20 years. The general rule is that whenever US-source income (including dividend income, interest or other passive income) is being paid to a non-US person, the intermediary US financial institution must collect an IRS Form W-8 that establishes a reduced rate or exemption from withholding under an Internal Revenue Code (IRC) provision or an income tax treaty.

Payors of US income have liability for any amounts they fail to withhold in accordance with claims made on a W-8. Customers may claim they’re eligible, but if the form is invalid and the IRS lacks jurisdiction (as with a non-US person), it will look to the financial institution.

Moreover, invalid forms are rather common, as approximately 25 percent of Form W-8 submissions from customers are invalid. Overwhelmingly, this is not due to fraud, but rather customers’ inability to manage the complexities of the tax forms and their instructions effectively.

Through this approach, US-based financial institutions, FFIs, and payors of US-source income will significantly improve data quality, operational efficiency, and customer satisfaction.

The electronic tax form validator’s efficient approach to ensuring data accuracy will handle most forms with straight-through processing, meaning that forms are always valid on their face and against available books and records data. When additional documentation is required (e.g., to cure US indicia), the eTFV provides easy and clear instructions to customers to enable them to understand those requirements. The result will be a significant reduction in the operational burden for financial institutions. At the same time, the eTFV makes it easier for individuals and business entities to transact internationally, contributing to their success and bolstering the reputation of the financial institution as a valuable business partner.

Tax Technology and Transformation Survey 2020

Our 2020 survey of 100 of the largest multinational companies finds that tax functions are investing heavily to close a data and technology gap.

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