Introduction: Why Under-Invoicing Has Become a High-Risk Area for Companies
In international trade, some companies attempt to reduce their customs burden by showing lower values on invoices, submitting fake documentation, or splitting shipments to disguise the actual value of imported goods. Although often perceived as a “cost-saving method,” under-invoicing is today considered one of the most serious forms of customs fraud in Turkey.
Customs administrations now cross-check:
- international price databases,
- shipping records,
- bank payments,
- supplier histories,
- industry benchmarks
to detect discrepancies between declared values and market norms.
When inconsistencies appear, both tax authorities and public prosecutors may initiate investigations. Under Turkish law, under-invoicing is not merely an administrative irregularity—it may constitute a full criminal offense.
Legal Framework: How Turkish Law Defines Under-Invoicing
Customs Value Rules and Corporate Obligations
The customs value (“gümrük kıymeti”) must reflect:
- the transaction value actually paid or payable,
- additions such as royalties, commissions, transportation costs,
- adjustments required by Customs Law and international valuation principles.
A company may not:
- issue fake invoices,
- pressure suppliers to reduce prices artificially,
- record fictitious discounts,
- split invoices to hide true value,
- omit mandatory cost components.
Such omissions violate both Customs Law and the Anti-Smuggling Law (5607).
When Under-Invoicing Becomes a Criminal Offense
Under Article 3 of the Anti-Smuggling Law, the following acts constitute smuggling:
- presenting false documents to customs,
- misrepresenting the nature or value of goods,
- causing a loss of duties through fraudulent declarations,
- engaging in organized schemes to evade customs taxes.
If the undervaluation results in tax loss, the offense is complete—even if the goods eventually enter the country legally.
Mechanisms of Under-Invoicing in Practice
Companies may engage in under-invoicing through several methods:
1. Fake or Altered Supplier Invoices
The buyer convinces the supplier to issue two invoices:
- one “real” invoice reflecting the actual commercial value,
- one “customs invoice” with significantly reduced figures.
This is the classic form of smuggling under Turkish case-law.
2. Declaring Only a Portion of the Goods
Companies sometimes split a shipment into:
- declared goods,
- undeclared “hidden” value components (e.g., accessories, additional features).
3. Excluding Mandatory Cost Components
Commonly omitted elements:
- transportation fees,
- insurance costs,
- royalty payments,
- assists (free equipment provided to manufacturers).
4. Manipulated Transfer Pricing
In related-party transactions, companies may artificially lower values to evade customs duties. Turkish authorities treat abusive transfer pricing as potential intent to smuggle.
Yargıtay’s Approach: Key Principles in Under-Invoicing Cases
Turkish Court of Cassation (Yargıtay) has adopted a strict approach to under-invoicing by companies. English-summarized principles include:
1. Submission of a Fake Invoice Is Sufficient for Criminal Liability
Yargıtay consistently holds:
“Providing customs authorities with documents that intentionally misrepresent value constitutes the crime of smuggling.”
Intent (“kast”) is inferred from:
- large deviations from market prices,
- dual-invoice systems,
- internal correspondence,
- persistent patterns of undervaluation.
2. Companies Cannot Rely on “Supplier’s Mistake” Defense
Yargıtay has repeatedly stated that:
“The importer bears responsibility for the accuracy of customs declarations.”
Therefore, even if the supplier issues the false invoice, the importer remains criminally liable.
3. Corporate Actors (Managers, Decision-Makers) May Be Individually Prosecuted
CEOs, finance directors, customs brokers, and logistics managers can face:
- imprisonment,
- judicial fines,
- professional bans.
The company itself may suffer:
- confiscation of goods,
- tax reassessments,
- administrative penalties.
4. Repeated Undervaluation = Organized Activity
Where under-invoicing becomes a pattern, Yargıtay treats it as aggravated smuggling.
5. Even Minor Under-Invoicing Can Trigger Criminal Proceedings
Because the offense focuses on intent to deceive, not the size of the tax gap.
Tax Consequences: What Companies Face After Detection
1. Reassessment of All Underpaid Customs Taxes
Authorities recalculate:
- customs duty,
- VAT on importation,
- special consumption tax (if applicable),
- anti-dumping duties,
- additional financial obligations.
2. Tax Penalties
Companies may face:
- 1–3 times the unpaid tax as a penalty,
- late interest,
- administrative fines for documentation breaches.
3. Retroactive Audits Covering Previous Years
If under-invoicing is discovered, the Ministry of Trade often initiates multi-year retrospective inspections, which may lead to:
- expanded tax assessments,
- company-wide audits,
- inspections of affiliated firms.
Criminal Consequences: How Prosecutors Handle Under-Invoicing
If customs authorities detect signs of fraud, they immediately file a criminal complaint.
Criminal sanctions may include:
- Imprisonment (1–5 years depending on severity),
- Judicial fines proportional to tax loss,
- Confiscation of goods,
- Criminal liability for company executives,
- Travel bans during investigation,
- Asset freezing in some aggravated cases.
Corporate Criminal Liability
Although Turkish criminal law does not impose direct imprisonment on corporations, a company may still face:
- confiscation of proceeds,
- closure of business units,
- restrictions on public procurement,
- cancellation of licenses or authorizations.
High-Risk Sectors for Under-Invoicing in Turkey
1. Electronics (phones, tablets, accessories)
Due to high customs duties and strong black-market incentives.
2. Automotive Parts and Accessories
Especially new parts, performance kits, and electronics.
3. Textiles and Ready-Made Clothing
Undervaluation is extremely common in low-cost mass imports.
4. Luxury Goods (watches, jewelry)
Yargıtay treats undervaluation here severely due to high market value.
5. Industrial Machinery
Companies sometimes omit components, tooling, or royalties.
How Companies Typically Attempt to Justify Under-Invoicing (and Why These Defenses Fail)
Companies often rely on the following arguments:
“We received a discount; that’s why the invoice is low.”
Authorities require proof of:
- commercial negotiation,
- market conformity,
- related-party documentation.
“The supplier made a clerical mistake.”
Yargıtay considers this defense invalid unless supported by strong evidence.
“We did not intend to deceive customs.”
Intent can be inferred from:
- internal emails,
- dual invoice systems,
- repeated practice.
“Our customs broker handled everything.”
Importers remain legally responsible for declarations.
This means a company cannot shift liability to brokers or logistics firms.
Compliance Strategies to Avoid Under-Invoicing Risks
1. Implement Strong Internal Customs Controls
Companies must establish:
- invoice verification systems,
- independent price checks,
- documentation workflows.
2. Maintain Transparent Communication with Suppliers
All discounts, rebates, and cost components must be:
- documented,
- commercially justified,
- compliant with valuation rules.
3. Audit Related-Party Transactions
International transfer pricing rules must align with customs valuation rules.
4. Train Staff on Anti-Smuggling Laws
Managers and supply-chain teams should understand the criminal consequences.
5. Conduct Periodic Compliance Audits
Voluntary disclosure may reduce penalties in some administrative stages.
Conclusion: Under-Invoicing Is Not a “Tax Strategy”—It Is a Criminal Risk
Under-invoicing exposes companies to a wide spectrum of legal hazards:
✔ Heavy tax assessments
✔ Administrative penalties
✔ Criminal prosecution
✔ Confiscation of goods
✔ Liability of directors and managers
✔ Severe reputational damage
Turkish courts, particularly Yargıtay, take an uncompromising stance toward under-invoicing because it directly undermines customs revenue and fair trade principles.
Companies must therefore adopt strict compliance, transparent pricing, documented supplier relations, and robust internal controls to avoid conduct that could be interpreted as intentional customs fraud.
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