The OECD CRAM (Corporate Risk Assessment Model) is a framework developed by the Organisation for Economic Co-operation and Development (OECD) to assess the financial and non-financial risks of corporations, particularly in the context of taxation and transfer pricing. It is part of the OECD’s broader efforts to address tax avoidance and ensure that multinational enterprises pay a fair share of taxes in the countries where they operate.
Here’s a basic overview of what the OECD CRAM risk model typically involves:
- Risk Identification: CRAM identifies potential risks in a company’s operations that might affect tax compliance. This could include risks related to transfer pricing, profit shifting, and other practices that might lead to tax base erosion.
- Risk Assessment: The model evaluates the significance of identified risks by analyzing factors such as the company’s size, complexity, the industry in which it operates, and its cross-border transactions. The model uses various data sources, including financial statements, tax filings, and other publicly available information.
- Risk Scoring: The identified risks are quantified and scored based on their potential impact. Companies with higher risk scores are flagged for further scrutiny by tax authorities.
- Mitigation Strategies: Based on the risk assessment, the model helps tax authorities determine appropriate mitigation strategies, which could include audits, additional reporting requirements, or other compliance measures.
- Monitoring and Review: The model is designed to be dynamic, allowing for continuous monitoring of corporate behavior and re-assessment of risks as new information becomes available.
The OECD CRAM model is used by tax authorities to prioritize their resources and efforts in dealing with companies that pose the highest risk of tax non-compliance. It is part of the OECD’s broader Base Erosion and Profit Shifting (BEPS) initiative.
