In determining the income amount of a domestic place of business of a foreign corporation, common expenses reasonably related to the accrual of domestic source income of the domestic place of business, out of expenses of the headquarters, etc., shall be allocated to the domestic place of business and shall be included in its deductible expenses. (Article 130 of the Enforcement Decree of the CorporateTax Act)

1. The scope of expenses allocated to the domestic place of business

According to paragraph 3 of article 130, in allocating common expenses of headquarter, related place having the jurisdiction over the place, etc. of the domestic place of business of a foreign corporation, expenses included in the following subparagraphs shall not be allocated to the domestic place of business. (Article 64 of the Enforcement Rules of the Corporate Tax Act)

① Expenses incurred by conducting proper business of headquarter including auditing, preparing financial statements, issuing stocks, etc.

② Expenses spent for specific department or specific branch of headquarter, etc.

③ Expenses related to investment for other corporations.

④ Other expenses which is unrelated to the accrual of domestic source income.

2. Allocation method

According to paragraph 3 of article 130, in allocating common expenses of headquarter, related place having the jurisdiction over the place, etc. of the domestic place of business of a foreign corporation, item allocation method in which the expense is allocated by standards of each expense items or collective allocation method in which the expense is allocated in accordance with the proportion of the expense in the business revenue may be implemented. (Article 64 of the Enforcement Rules ofthe Corporate Tax Act)

3. The method of converting a foreign currency into Korean won for allocating expenses

In case of allocating common expenses, average standard exchange rate or average arbitrated exchange rate for the relevant business year in accordance with the Foreign Exchange Transactions Act is applied to convert the foreign currencyi nto Korean won.