(1) The tax base for a domestic corporation that prepares the financial statements by adopting a currency, other than Korean Won, as a functional currency according to the corporate accounting standards shall be calculated in the method reported to the head of the tax office having jurisdiction over the place of tax payment, among the following methods (hereafter in this Article, referred to as "calculation method of tax bases"); provided, the tax base of income for the business year before the calculation method of tax bases prescribed in subparagraph 2 or 3 is first reported and applied shall be calculated upon applying the calculation method of tax bases prescribed in subparagraph 1, and consolidated corporations that belong to the same consolidated group shall report and apply the same calculation method of tax bases:
1. Method of calculating tax bases based on the financial statements to be otherwise prepared, when no currency, other than Korean Won, is adopted as a functional currency;
2. Method of calculating tax bases based on the financial statements denominated in a functional currency and subsequently converting it into Korean Won;
3. Method of calculating tax bases based on the financial statements converted into Korean Won by applying the exchange rates as at the end date of the business year in the case of the items on the statement of financial position, and the exchange rates as at the relevant trading day (referring to the average exchange rate for the relevant business year in the case of the items prescribed by Presidential Decree) in the case of the items on the consolidated income statement (referring to a profit and loss statement where no consolidated income statement is available; hereinafter the same shall apply).
(2) A corporation that has reported and applies the calculation method of tax bases prescribed in paragraph (1) 2 or 3 may not change the calculation method of tax bases unless there arise circumstances prescribed by Presidential Decree, such as change of the reported functional currency and a merger between corporations using a different calculation method of tax bases.
(3) Where a corporation that applies the calculation method of tax bases prescribed in paragraph (1) 2 or 3 changes its functional currency, it shall include, in gross income, the amount calculated by subtracting the amount under subparagraph 2 from the amount under subparagraph 1 per asset or liability when calculating the amount of income for the business year during which it changes its functional currency and includes an amount equivalent thereto in deductible expenses by appropriating it as lump-sum depreciation reserve funds or compressed accounts reserve funds, as prescribed by Presidential Decree:
1. The book value of the relevant asset or liability as at the commencement date of the relevant business year denominated in the functional currency after change;
2. The amount denominated in the functional currency after changing the currency by applying the exchange rate as at the date on which the relevant asset is acquired or liability arises to the book value of the asset or liability as at the end date of the immediately preceding the business year in which the amount is denominated in the functional currency before change.
(4) Paragraph (3) shall apply mutatis mutandis where a corporation first applies the calculation method of tax bases prescribed in paragraph (1) 2 or 3. In such cases, the functional currency before change shall be deemed Korean Won.
(5) For purposes of paragraphs (1) through (4), matters necessary for the application of exchange rates, the report and change of the calculation method of tax bases, the disposition of amounts included in deductible expenses, the report of tax bases of a corporation that selects each calculation method of tax bases, the application of calculation method of tax bases, and other matters shall be prescribed by Presidential Decree.[This Article Added on Dec. 30, 2010]