I am often asked to review a company's compliance with U.S. import requirements. A problem I frequently find is that I cannot trace the value of the goods declared at the time of importation to the company's payment for the same goods. Or, if I can, I find that the payment amount is different than the amount declared to U.S. Customs and Border Protection (CBP) at the time of importation.
Why does this happen? Mostly, I suspect, because the importer is not adhering to the requirements of the U.S. Customs regulations by requiring the supplier to provide a true commercial invoice to use when declaring the value of the goods at the time of importation. Rather, exporters may provide some kind of delivery document, shipping invoice, or a proforma invoice, all of which are unacceptable to CBP as valid evidence of the value of the merchandise imported.
This problem has been exacerbated in recent years as CBP transitions to an automated environment, and no longer requires importers to submit paper entry documents; therefore, the lack of an acceptable commercial invoice goes unnoticed until a Customs audit, and then the importer either can't link the document used at the time of entry to the payment, or worse, the amount paid is different than the amount declared.
The regulations of CBP are quite clear. A commercial invoice must accompany all entries of goods, unless an exception exists. Sections 141.81 and 141.83 of the Customs regulations provide:
§ 141.81 Invoice for each shipment.
A commercial invoice shall be presented for each shipment of merchandise at the time the entry summary is filed, subject to the conditions set forth in these regulations.
§ 141.83 Type of invoice required.
(c) Commercial invoice.
(1) A commercial invoice shall be filed for each shipment of merchandise not exempted by paragraph (d) of this section.
What is a "Commercial Invoice?
In both business and legal terms, a commercial invoice is defined as the seller's bill of sale for the goods:
COMMERCIAL INVOICE - The seller's bill of sale for the goods sold, specifying type of goods, quantity and price of each type and terms of sale.
The U.S. Customs regulations identify additional requirements and information (§§ 141.86 through 141.89) that must be provided on a commercial invoice. And, as a general rule, the original commercial invoice must accompany the shipment. Obviously, many of us can look at our transactions and see that this is not what currently occurs. Rather, we may use delivery notes or proforma invoices to declare the value of the goods at the time of entry, while, at a later time, Accounts Payable receives the commercial or billing invoice from the supplier, from which payment is made. This type of process is fraught with problems unless the importer takes appropriate steps to ensure that the amount declared to CBP is the actual amount paid, and that there is an audit trail that links the entry value declaration with the commercial invoice and the payment record.
Customs Bond Requirements And Liquidated Damages
Most importers are probably not aware of the fact that the submission of a commercial invoice is a condition of importation, and that the failure to provide a commercial invoice is a breach of condition of their import bond for which liquidated damages can be assessed. See § 113.62. In addition, importers (or their brokers) sign a declaration at the time of entry stating that the prices set forth on the invoice are true and correct, and that if the importer later learns that this is not true, it will notify Customs of the inaccuracy . See 19 U.S.C. § 1485(a)(4).
When Is a Commercial Invoice Not Required?
A commercial invoice represents the seller's "bill of sale" for the goods. As such, the most obvious circumstance when a commercial invoice is not required is when there is "no sale" associated with the merchandise being imported. Section 141.83(d) of the Customs regulations provides that a commercial invoice is not required in connection with the filing of an entry for:
- Merchandise not intended for sale or any commercial use in its imported condition or any other form, and not brought in on commission for any person other than the importer.
- Merchandise returned to the United States after having been exported for repairs or alteration under HTS subheadings 9802.00.40 and 9802.00.60.
- Merchandise for which an appraisement entry is accepted.
- Merchandise entered temporarily into the Customs territory of the United States under bond or for permanent exhibition under bond.
The importer, however, is still required to present some evidence of value, such as an invoice, memorandum invoice, or bill pertaining to the merchandise which is in his possession or available to him. In the case where a foreign shipper provides merchandise to a U.S. importer free of charge, and it is not the manufacturer, § 141.86(b) provides:
(b) Non-purchased merchandise shipped by other than manufacturer. Each invoice of imported merchandise shipped to the United States other than the manufacturer and other than pursuant to a purchase shall set forth the time when, the place where, the person from whom such merchandise was purchased, and the price paid.
If no invoice or bill is available, a proforma invoice, as provided for in § 141.85, must be filed, and must contain sufficient information to determine admissibility, classification, and the amount of duties due. Proforma invoices, however, as noted below, are subject to additional bond conditions, unless a waiver is requested and granted.
Entries Without Proper Commercial Invoices
If a commercial invoice is not available in proper form at the time of the entry, and a waiver is not requested or granted in accordance with § 141.92, the entry documentation will be accepted by CBP only under the following conditions:
(a) The port director is satisfied that the failure to produce the commercial invoice is due to a cause beyond the control of the importer, and
(b) The importer provides:
(1) A written declaration that he is unable to produce such invoice, and
(2) Any seller's or shipper's invoices that are available to him or, if none are available, a proforma invoice prepared in accordance with § 141.85;
(c) The invoices and other documents must contain information adequate for the examination of merchandise, the determination of estimated duties, if any, and statistical purposes; and
(d) The importer files a bond on Customs Form 301, containing the bond conditions set forth in § 113.62, in an amount equal to one and one-half the invoice value of the merchandise.
(e) Finally, the required commercial invoice must be produced within 120 days after the date of the filing of the entry summary.
Requesting a Waiver of Invoice Requirements
The port director at the port of entry may waive a required commercial invoice when he is satisfied that either:
(1) The importer cannot by reason of conditions beyond his control furnish a complete and accurate invoice; or
(2) The examination of merchandise, final determination of duties, and collection of statistics can be effected properly without the production of the required invoice.
As a condition to the granting of a waiver, the importer must provide the following documents with the entry:
(1) Any invoice or invoices received from the seller or shipper;
(2) A statement pointing out in exact detail any inaccuracies, omissions, or other defects in such invoice or invoices;
(3) A proforma invoice executed in accordance with § 141.85; and
(4) Any other information required by the port director for either the appraisement or classification of the merchandise.
Liability under the bond on Customs Form 301 for the production of a correct commercial invoice shall be deemed satisfied when a waiver has been granted.
Exercising Reasonable Care:
What Importers Should Do To Ensure Compliance
The first step that all importers should take is to review their import transactions and entry documents on a regular basis to ensure that they are actually using a true commercial invoice for entry declaration purposes, and that the value stated on the invoice declared to Customs is what the importer paid its foreign supplier. If there is a value difference, then the importer should consider how best to take corrective action, such as filing a post entry amendment, a prior disclosure, or participation in Customs' Entry Reconciliation program.
Entry values can be verified by comparing the invoice accompanying the entry package against the document used by accounting or accounts payable to pay for the merchandise. If the two are not the same, or if you cannot tie the two together, you have a problem.
Second, importers should establish a policy that a commercial invoice must accompany all imports, unless one of the noted exceptions exists.
If an exception does exist, as in the case of imports of no-charge merchandise, returns, or goods subject to foreign assembly, then the importer is advised to review the circumstances of the exception with their local import or entry specialist team at the port of entry and establish a procedure to ensure that proper documentation is available to support the value declared on the entry. If necessary, the importer can request a waiver of the commercial invoice and use an acceptable proforma invoice to declare the value, or participate in Custom's Entry Reconciliation program.
If you have any questions with regard to this newsletter, please do not hesitate to contact George R. Tuttle, III at (415) 288-0428 or email@example.com.
George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in the San Francisco Bay Area.
The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.
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