A207: It is a criminal offence to include anything on, or omit anything from, a commercial invoice that results in a false statement to customs.

For example, if you did not incur the international carriage (commonly called the “freight”) then you cannot include it on your commercial invoice. Conversely, if you did incur it you can’t exclude it.

But there is no restriction which directs that you must submit the freight on the same invoice as the supply of the goods. As such, a file with two (or more) commercial invoices covering a single supply is possible.

In some models, the freight is legitimately only known after the event and so two commercial invoices may arise in the ordinary course of business, but if this is not your model then you are right to ask yourself ‘why’ your client has requested this of you.

In second-guessing their motive I will assume the worst, but there may be nothing sinister happening at all, despite the fact that I cannot think of a rational explanation for their request.

As part of the laws and processes around import control, a country decides at what valuation point in the supply chain duties and taxes will be calculated.

For example, South Africa uses the customs free on board valuation point, which is also referred to as the first export price and which is loosely the value of the supply before the international freight leg is added.

This valuation point is informally often expressed “fob” or “f.o.b.”

Some developing countries use the c&f (cost and freight) price, which is the f.o.b. value with the freight portion added, and still others use the c.i.f. value which is the c&f value with the marine insurance premium added.

As a general statement, as there are exceptions, and notwithstanding South Africa’s use of the f.o.b. value, many African States use the c.i.f. customs value.

There are other valuation points, additonal to these common points, but I am excluding these for ease of explanation.

As you can imagine, the higher the customs value then the greater the revenue to the State from an applicable duty or tax, and you tend to find developing states using the higher c.i.f. value, whereas developed states use the lower f.o.b. value. But it is a local decision and, as I say, I have made a very broad generalisation.

If you are familiar with Incoterms you will know that in section A1 of each definition, the seller is obliged to create a “commercial invoice in conformance with the contract of sale”.

Given that there are local variations on layout and content it is anticipated in the Incoterms text that the buyer will direct the seller on the format of the commercial invoice, in order to ensure that the destination customs authority statistically and financially assesses import cargo at the correct (legally lowest) value.

Directed by the buyer or not, the seller is always best advised to create a commercial invoice that at least shows the commonest moments of valuation that comprises their transaction price.

This is broadly referred to by customs as a breakdown of “all ancillary charges” and it starts with the top-line selling price of the product.

This is the selling price on a vehicle, outside the factory gates or point of supply, customs cleared and fit for export. This value is termed ex-works.

Obviously, if the seller is supplying on this basis then this would be the only line to the invoice. However, if the price further included (say) the pre-carriage and loading onto a vessel or aircraft, then these additional charges would be listed and marked f.o.b.

(In roadfreight, if the goods are loaded at the seller’s premises directly onto the vehicle which will thereafter cross the border, the ex-works and f.o.b. prices become identical.)

A typical c.i.f. commercial invoice might break values down as follows;

Product description…………..ex works……………. 5 000.00
Transport to ship………………f.o.b.……………………. 1 500.00
Freight………………………………c&f.…………………….. 1 000.00
Insurance…………………………..c.i.f.………………………..150.00
Local delivery…………………………………………………… 350.00
TOTAL……………………………….……………………………8 000.00

When no breakdown is supplied by the seller, i.e. when the invoice is merely presented as a lump-sum, pre-calculated averages will be applied to estimate the breakdown of the gross total.

What happens in an import country that uses the c.i.f. valuation method when the seller issues only an ex-works or f.o.b. commercial invoice is that the importer would be asked to produce evidence of the actual freight disbursement i.e. they would need two documents to support their customs value – for example the seller’s f.o.b. invoice and (say) a separate freight invoice from the carrier.

Importantly in the context of your question then, if you are to present two invoices, one must be clearly marked f.o.b. (as indicated above, or at least indicated alongside the bottom-line value) and the other commercial invoice must be clearly marked as addressing ‘freight only’ or similar wording.

By not doing it this way the importer may illegally present your f.o.b. invoice claiming that it is a c.i.f. invoice i.e. claiming that your f.o.b. price is inclusive of freight.

This misdeclaration results in an artificially low value for customs purposes i.e. the freight is not included in the price really, but it is claimed that it is.

If this is done with the specific intention of misleading customs to attract a lower duty or tax liability then, as stated above, it is a criminal offence. Be aware of this.

Although the offence has occurred in a foreign country that most likely has no jurisdiction over you, your company is not likely to be forgotten that easily by the destination authorities, and you may find your future dealing in that market prejudiced by association to this intentional misdeclaration.

Be aware too that there may be a process established through a trade agreement where the destination revenue services actually do have direct recourse to you.

One final point: the symbols ex-works, f.o.b., c&f and c.i.f. are customs valuation points representing the ‘language’ of valuation, the meaning of which is defined at law.

Try not to confuse them with private commercial terms, such as the Incoterms Rules FOB, CIF etc., which may look and sound similar. This is the contract language, not the invoice language.

It is a common error to put ‘commercial terms’ on a commercial invoice instead of the mandated valuation symbols and it can get very confusing when clearing agents, carriers and customs themselves refer to the wrong system – just remember that they are unrelated langauges.

Commercial terms are written into contracts, not invoices.

The Seller is not the Exporter. The Buyer is not the Importer. The name-change is important, and being aware of it guides you to the correct vocabulary.

In summary. If you do not know the freight charge at the time the first commercial invoice is raised, then annotate the first invoice f.o.b. and issue the freight invoice in due course, separately.

If you do know the freight amount when your raise your invoice, then include it as a separate line item on the single commercial invoice covering the transaction.

The client is not king, your shareholders are. Be sure you are not exposing your shareholders to an avoidable risk merely to keep your client happy in their pursuit of criminal ends.

The last course for 2024 addresses Incoterms, on the 3rd and 4th December. Mail me if you’d like more information [email protected]