In calculating the contribution points of locally provided policyholders under the National Health Insurance Act and the monthly health insurance fees, whether the amount of losses carried forward from the total amount of income generated from the business should be deducted (negative)

Articles 69(5) and 72(1) and (3) of the former National Health Insurance Act (Amended by Act No. 14766, Apr. 18, 2017); Articles 41(1)3 and 42(1) and (2) of the former Enforcement Decree of the National Health Insurance Act (Amended by Presidential Decree No. 28693, Mar. 6, 2018); Articles 19(1) and (2), and 45(1) and (3)1 of the former Income Tax Act (Amended by Act No. 11611, Jan. 1, 2013);

Plaintiff

National Health Insurance Corporation (Attorney Park So-young, Counsel for defendant-appellee)

Seoul High Court Decision 2014Nu64737 decided July 23, 2015

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. Case summary and key issue

A. Summary

According to the reasoning of the lower judgment, the following facts are revealed.

1) On September 201, the Plaintiff commenced the Housing Construction and Sales Business (hereinafter “instant business”) and disbursed KRW 703,640,420 as necessary expenses for the instant business from September 201 to December 201, 201.

2) The Plaintiff obtained income of KRW 800 million through the instant business from January 2012 to December 2012, 201, and disbursed KRW 229,93,640.

3) On February 25, 2013, the Plaintiff acquired the eligibility as a dependent of the national health insurance under the National Health Insurance Act, but lost the eligibility as a dependent on December 1, 2013, and acquired the eligibility as an individually insured person.

4) On November 2013, the Defendant calculated the contribution point of the Plaintiff’s household as 12,256 on the premise that the Plaintiff’s business income for the year 2012 accrued from the instant project is KRW 56,910,000,000, and imposed the Plaintiff a health insurance premium of KRW 2,293,110 each month (including long-term care insurance premiums) on the Plaintiff from December 2, 2013 to May 2014 (hereinafter “instant disposition”).

5) When calculating the Plaintiff’s business income for the year 2012, which is included in the calculation of the Plaintiff’s insurance premium imposition points at the time of the aforementioned disposition, the Defendant did not deduct the Plaintiff’s business income accrued from September 201 to December 2011, KRW 703,640,420 (the Plaintiff spent necessary expenses for the instant business in 201, but did not receive any income. Under the income tax law, the necessary expenses incurred by the Plaintiff shall be the deficit in the pertinent taxable period, and may be carried over to a taxable period within a certain scope, and may be deducted from the business income).

B. Issues

The lower court held that the instant disposition was unlawful on the ground that the Defendant did not deduct the Plaintiff’s loss carried forward incurred in 2011 when calculating the Plaintiff’s business income for year 201, which was included in the calculation of insurance premium imposition points, based on the premise that the amount of business income based on the calculation of insurance premium imposition points and monthly health insurance fees should be calculated by deducting necessary expenses, including a loss carried forward, from the gross income

In regard to this, the Defendant asserted that the amount of business income that was based on the calculation of the health insurance fees is the total amount of income and that the carried-over losses cannot be deducted, and that the lower court erred by misapprehending the legal doctrine and thereby

The key issue of the instant case is whether the loss carried forward should be deducted from the total amount of income generated by the project when calculating the imposition score of the insurance premium and the monthly health insurance premium.

2. Whether any deficit brought forward should be deducted;

A. Provisions of the statute

Article 69(5) of the former National Health Insurance Act (amended by Act No. 14766, Apr. 18, 2017; hereinafter the same) provides that the amount of monthly insurance premiums for the households to which an individually insured person belongs shall be calculated by multiplying the contribution point calculated under Article 72 by the amount per a certain contribution point. Article 72 of the same Act provides that the contribution point shall be determined by taking into account the income, property, living standard, participation rate in economic activities of the locally insured person (Article 72) and matters necessary for calculation thereof shall be prescribed by Presidential Decree (Article 3). Article 42(1) and (2) of the former Enforcement Decree of the National Health Insurance Act (amended by Presidential Decree No. 28693, Mar. 6, 2018; hereinafter the same shall apply) upon delegation, lists business income as one of the incomes included in the calculation of contribution points by applying mutatis mutandis Article 41(1)3, and “income under Article 19 of the Income Tax Act.”

Article 19 of the former Income Tax Act (amended by Act No. 11611, Jan. 1, 2013; hereinafter the same) provides that the income accrued during the pertinent taxable period shall be the business income from each of the following subparagraphs, and Article 19 (2) provides that the business income shall be the amount calculated by deducting necessary expenses incurred therein from the total amount of income in the relevant taxable period.

B. Determination

1) In light of the language and purport of the above provisions, business income listed in the income included in the calculation of contribution points under Article 41(1)3 of the former Enforcement Decree of the National Health Insurance Act shall be calculated as business income under Article 19(2) of the former Income Tax Act, and otherwise, it is difficult to view that the said business income should be deducted additionally from the above business income to the loss brought forward before the pertinent taxable period. The reasons are as follows.

A) Article 41(1)3 of the former Enforcement Decree of the National Health Insurance Act specifies “business income” which is included in the calculation of contribution points as “income under Article 19 of the Income Tax Act” and does not separately provide for the method of calculating such business income. However, Article 19(2) of the former Income Tax Act provides that the amount of business income shall be calculated as “the amount obtained by deducting necessary expenses incurred from the total amount of income generated during the pertinent taxable period from the amount of business income generated during the pertinent taxable period,” barring any special provision, deeming that the amount of “income under Article 19 of the Income Tax Act” under the National Health Insurance Act refers to the amount of business income calculated under Article 19(2) of the former Income Tax Act.

In the case of wage and salary income (Article 41 (1) of the former Enforcement Decree of the National Health Insurance Act) and pension income (Article 41 (1) 4) listed in the type of income (Article 41 (4) and (5) of the former Enforcement Decree of the National Health Insurance Act, the proviso explicitly provides that the application of the provisions on income deduction (Articles 47, 20-3 (2) and 47-2 of the Income Tax Act) shall be excluded when calculating the amount of income corresponding to each type of income, but there is no proviso in the purport that the application of the provisions on income deduction (Article 47, 20-3 (2) and 47-2 of the Income Tax Act) shall be excluded in the case of business income (Article 3). Therefore, there is a question that it does not indicate that the application of the provisions on income deduction under Article 19 (3) of the former Income Tax Act should not be excluded in calculating the amount of income "income under the above Article 45 (3) of the Income Tax Act."

B) Business income deficit refers to the excess amount when the necessary expenses for the pertinent taxable period exceed the total amount of income (the latter part of Article 19(2) of the former Income Tax Act). A business operator other than a real estate rental business may, when calculating the global income tax base for the relevant taxable period, deduct a deficit in the order of wage and salary income, annuity income, other income, interest income, and dividend income (Article 45(1) of the former Income Tax Act). Any deficit carried forward remaining after such deduction shall be deducted in order from the amount of business income, wage and salary income, pension income, other income, interest income and dividend income when calculating the amount of income in the taxable period ending within 10 years from the end of the taxable period in which the loss

As such, the amount of carried-over losses is not simply deducted from the amount of business income, but also included in the statutory order of other amount of income constituting global income. Article 14(2) of the former Income Tax Act, which provides for the calculation of the tax base, also stipulates that Article 45(2) of the Income Tax Act as well as the type of business income, the form of return or decision on business income, and whether the withholding tax rate is applicable to the dividend income or interest income. Furthermore, the amount of losses incurred from the real estate rental business of a business operator differs depending on the type of business income, the form of return or decision on business income, and whether the amount of the withholding tax is subject to the application of the withholding tax rate. In other words, the amount of losses incurred from the real estate rental business of a business operator is not deducted from the amount of income of the real estate rental business when calculating the global income tax base (Article 45(3)2 of the former Income Tax Act only). In addition, where a tax return on the amount of income in the relevant taxable period or a tax assessment by estimation is not allowed (Article 45(4).

Ultimately, Article 19(2) of the former Income Tax Act provides for the meaning of business income in Article 19(2) and provides the basis for calculating global income, but Article 45(3) separate provisions for carried-over losses that are not the business income itself. In light of the system, etc. of the Income Tax Act, it cannot be deemed that the “income under Article 19 of the Income Tax Act” under the National Health Insurance Act should be necessarily reflected in the “income under Article 45(3) of the former Income Tax

C) The system of deduction of losses carried forward is established in the Income Tax Act for the purpose of relaxing the side effects arising under the taxation principle that calculates the tax base and the amount of tax by artificially defined period based on the convenience of taxation or technical needs, and promoting the equity in tax burden. On the other hand, health insurance premiums collected for the purpose of appropriating expenses incurred in health insurance programs are clearly different from income tax in terms of their legislative purpose, legal character, payment obligor, and existence of benefit in return, and thus the content and degree

In light of such differences between health insurance premiums and income tax, and the scope of legislative formation authority of the legislators on the health insurance system, etc., even though the National Health Insurance Act does not explicitly stipulate that the provisions of the Income Tax Act apply to the deduction of carried-over losses under the Income Tax Act, the deductible losses deduction system under the unique necessity under the Income Tax Act is naturally reflected in determining the degree of bearing health insurance premiums, and it cannot be said that the “income under Article 19 of the Income Tax Act” under the National Health Insurance Act should be determined differently from the business income under Article 19

2) Nevertheless, under the erroneous premise that business income under Article 41(1)3 of the former Enforcement Decree of the National Health Insurance Act is calculated by deducting losses carried forward from business income under Article 19(2) of the former Income Tax Act, the lower court determined that the instant disposition was unlawful. The lower court erred by misapprehending the legal doctrine on business income included in the calculation of national health insurance premium assessment, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds

3. Conclusion

Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jae-hyung (Presiding Justice)