How making tax smarter helps businesses manage rapid change

According to its website, “The Dow Chemical Company is a leader in materials science, delivering innovative and sustainable solutions for customers in packaging, infrastructure and consumer care.” Since 2018, EY teams have been working with Dow to create an intelligent tax function – instilling the agility required to quickly respond to and adapt to disruptive forces, be that from internal or external change.

At the time the collaboration began, Dow’s leadership found itself facing a wave of challenges. It was engaged in major M&A activity, as well as scrambling to keep up with a fast-moving operating environment — all while facing the increasing sophistication of the tax authorities, who were demanding ever greater transparency and real-time access to digital tax data.

Against this backdrop, Dow’s C-suite realized there was immense value in a tax function that served as a true strategic partner to the business — not only for meeting compliance requirements but also for adding value in everything from investment decisions to competitive analysis. Yet when they looked at their existing tax function, they saw something very different — a “black box” in which they couldn’t understand what decisions were being made, or why. 

“Tax was almost speaking its own language,” says Marcelo Vieira, Dow’s Director of Tax Strategy and Global Tax Operations. “So, while the C-suite needed to participate in the strategies of the company globally, and for tax to come closer to the business, the tax function was too far from their reality for them to understand.”

Dow’s tax function needed a radical transformation. The company would need to create a vision and plan to elevate tax function beyond managing compliance, to managing the evolving risk picture on a global basis and becoming a value-adding strategic partner within the enterprise. And it would have to introduce leading-edge processes and technology that pushed efficiency and effectiveness to a whole new level.

The question was how. 

The transformation began with EY teams assessing Dow’s existing tax function operating model – a deep dive that brought the function’s problems into sharp relief.

“What we found at Dow was a traditional, tax department operating in silos – something that is very typical of its peers and the sector in which it operates,” says Andrea Gronenthal, Transaction and Transformation Leader at Ernst & Young LLP within EY Americas Tax Technology and Transformation services. “As a result, there was duplication of effort and other inefficiencies that typically come with a siloed approach – not least around use of technology and data, and the impact on talent. Parallel to this assessment, we worked with Dow to build a business case for transformation. A critical part of this was the development of a long-term strategy that supported business priorities.”

The collaboration between EY’s Tax Advisory and the Tax, Technology and Transformation teams unfolded over a year, and created a broad story of strategic transformation.

This proved key in gaining crucial buy-in from Dow’s executive leadership.

“The CFO said we had him at ‘hello,’” says Gronenthal. “Indeed, for Dow’s C-suite, it was a clear-cut business case. That top-level sponsorship is critical when doing something this significant, in terms of making sure change succeeds at scale.”

With due diligence complete, and senior buy-in secured, the teams began to create something spectacular: a truly intelligent, leading edge tax function – one designed to align tax with the business, elevate it to a much more strategic role, and provide the efficient, effective management of risk around the globe. All of these are supported by a detailed process design and leading-edge tax technology.

This meant making significant changes such as determining which elements of Dow’s current operating model should be kept in-house – and which were better suited to a tailored outsourcing approach, helping them to be more cost-effective, or ‘best in cost’.

The EY teams also reviewed Dow’s processes, with a particular focus on their approach to risk, laying the groundwork to thread risk-based processes and resource allocation through the entire tax life cycle – in the key areas of planning, controversy and partnering with the business.

This global risk management framework was aligned to a clear set of global standards, integrated into the new processes at the design stage, and helped shape the flow of data.

This detailed intelligent process was designed to adapt to changing risk criteria. In the face of disruption to operations – whether through the introduction of new regulations, or a shift in business strategy – everything in the risk management process, from data capture to document storage and review, could now seamlessly adjust, creating an unprecedented level of versatility.

That left the Dow team able to focus on items tagged as greater risk, and to react with agility when that risk profile changed – without reworking each process every time.

With this framework in place, the focus turned to outsourcing the work that didn’t need to be done in-house. Dow’s tax team had largely been consumed by day-to-day compliance tasks. In order to be better positioned for the strategic demands of the future, they would need a greater focus on technology and data, and on the risk and controversy inherent in their global operations.

To accelerate the transformation, select parts of the compliance function in North America were outsourced to EY teams, via its Global Compliance and Reporting Group. This ran in tandem with the development of an internal Tax Operations Group. New hires were brought in, and existing roles redefined, with a new talent development track introduced to train people in key new skills, which also served to make the work more gratifying. Dow is more than two years into this journey and continues to refine and enhance how it operates.

The entire process re-design was supported by EY intelligent tax framework, a holistic tax technology and data framework that helped Dow build its own tax technology platform in-house. Changes were introduced incrementally, with every element connecting seamlessly to each other at the end.

The following image represents tax technology and data framework that helped Dow's transformation: