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

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. 

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.

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: