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)

In light of the language and purport of Articles 69(5) and 72(1) and (3) of the National Health Insurance Act, 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), and Article 19(1) and (2) of the former Income Tax Act (amended by Act No. 11611, Jan. 1, 2013; hereinafter the same shall apply), business income listed in Article 41(1)3 of the former Enforcement Decree of the National Health Insurance Act included in calculating contribution points refers to business income prescribed in Article 19(2) of the former Income Tax Act. On the contrary hand, it is difficult to view that the said business income should be additionally deducted from the said business income to the loss brought forward before the relevant taxable period.

Articles 69(5) and 72(1) and (3) of the National Health Insurance Act, 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); Article 19(1) and (2) of the former Income Tax Act (Amended by Act No. 11611, Jan. 1, 2013);

Plaintiff

National Health Insurance Corporation (the Government Legal Service and one other, Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Nu63505 decided April 10, 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) The Plaintiff has been engaged in the tax accountant business, real estate rental business and real estate sales business, and acquired the qualification of a locally provided policyholder under the National Health Insurance Act on December 201.

(2) The Defendant is a corporation established pursuant to the National Health Insurance Act and in charge of the imposition and collection of insurance premiums, etc. The Defendant imposed health insurance premiums of KRW 295,250 on the Plaintiff every month from January 2012 to October 201 of the same year, which was premised on the premise that the global income amount of the Plaintiff’s household in 2010 is KRW 6,530,000 (the Plaintiff’s real estate rental business income amount is KRW 4,020,000).

(3) After that, the Defendant was notified by the competent tax office that the Plaintiff’s business income for the year 2010 was initially identified as KRW 4,020,00,000, not only the real estate rental business income, but also the business income other than the real estate rental business, totaling KRW 472,030,00. The Defendant, which reflects the increased business income, re-calculated the contribution point and monthly health insurance fee for the Plaintiff’s household that reflects the increased business income, and imposed the Plaintiff a total of KRW 18,468,50, etc. on October 21, 2013.

(4) When calculating the Plaintiff’s business income for year 2010 included in calculating the Plaintiff’s health insurance premium imposition points at the time of the instant disposition, the Defendant did not deduct the amount of KRW 42,263,420 from January 1, 2007 to December 31, 2009 as losses carried forward, other than real estate rental business, incurred to the Plaintiff (if there are more than once doing business, losses may occur, and losses may be deducted after the lapse of the business year after the occurrence of the losses carried forward).

B. Issues

The lower court determined that the instant disposition was unlawful. For that reason, even if the business income based on the calculation of contribution points and monthly health insurance premium ought to be calculated by deducting carried forward losses from the total amount of income, the Plaintiff’s business income accrued in January 1, 2007 to December 31, 2009 as the basis of the instant disposition was that the Plaintiff’s business income accrued in 2010 did not deduct the Plaintiff’s carried forward losses incurred from January 1, 2007 to December 31, 2009. In so doing, the Defendant asserted that the Defendant’s business income that was based on

The key issue of this case is whether the loss carried forward should be deducted from the total amount of income generated from the project when calculating the contribution point and the monthly health insurance fee.

2. Whether any deficit brought forward is deducted;

A. Provisions of the statute

Article 69(5) of the National Health Insurance Act 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 points calculated under Article 72 by the amount per contribution point. Article 72 of the National Health Insurance Act provides that the contribution point shall be determined by taking into account the income, property, standard of living, participation rate in economic activities, etc. of an individually insured person (paragraph (1)), and matters necessary for calculation thereof shall be prescribed by Presidential Decree (paragraph (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 “former Enforcement Decree of the National Health Insurance Act”) upon delegation from the National Health Insurance Act lists “business income” as one of the incomes included in the calculation of contribution points by applying Article 41(1)3 of the Income Tax Act mutatis mutandis.

Article 19 (1) of the former Income Tax Act (amended by Act No. 11611, Jan. 1, 2013; hereinafter “former Income Tax Act”) provides that the income generated in the pertinent taxable period shall be the business income for each of the following subparagraphs. Paragraph (2) of the same Article provides that the business income shall be “amount obtained by deducting necessary expenses used therefor from the total income in the pertinent 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 deemed as having accrued from the business income under Article 19(2) of the former Income Tax Act. On the contrary, it is difficult to view that the said business income should be deducted again from the said 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, and does not separately determine the method of calculating such business income. Article 19(2) of the former Income Tax Act provides that 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 total amount of business income generated during the pertinent taxable period.” Therefore, it conforms to the language and text that “income under Article 19 of the Income Tax Act” under the National Health Insurance Act refers to the amount of business income calculated pursuant to Article 19(2) of the former Income Tax Act.

In the case of earned income (Article 47, 20-3(2), and 47-2 of the former Enforcement Decree of the National Health Insurance Act (Article 41(1)) and pension income (Article 41(1) of the former Enforcement Decree of the National Health Insurance Act) by explicitly stipulating that certain income deduction provisions (Article 47, Article 20-3(2), and Article 47-2 of the former Income Tax Act) shall not apply when calculating the amount of income corresponding to the type of income, however, there is no separate proviso that the provision of tax deduction shall not apply

Therefore, in calculating the “income under Article 19 of the Income Tax Act”, there may be room to view that the provisions on the deduction of carried forward losses under Article 45(3) of the former Income Tax Act apply. However, this alone does not necessarily mean that the “income under Article 19 of the Income Tax Act” under the National Health Insurance Act is the amount calculated by deducting carried forward losses under Article 45(3) of the former Income Tax Act.

(B) The amount of business income deficit means 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). In calculating the global income tax base for the relevant taxable period, a business operator other than a real estate rental business shall be deducted 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). A carried-over deficit shall be deducted in the order of order from the amount of business income, wage and salary income, pension income, other income, and dividend income when calculating the amount of income in the taxable period ending within 10 years from the end

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 on the calculation of the tax base also stipulates the “Article 45 of the Income Tax Act” along with the “Article 19 of the Income Tax Act” as grounds for calculation of global income. Furthermore, whether the type of business income, the form of report or decision on the amount of business income, the dividend income or interest income subject to the withholding tax rate are different depending on whether there is any part subject to the application of the withholding tax rate. In other words, losses incurred in the real estate rental business of a business operator are not deducted when calculating the global income tax base, and the carried-over losses are subject to deduction from the amount of income of the real estate rental business when calculating the amount of income (Article 45(3)2 of the former Income Tax Act only). In addition, where a return on estimation or a determination on the amount of income in the relevant taxable period is made or a determination on estimation is made, the amount of losses shall be excluded (Article 45(5).

Ultimately, Article 19(2) of the former Income Tax Act prescribes 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” should be necessarily reflected in the “income under Article 45(3) of the former Income Tax Act.”

(C) The system of deduction of carried-over losses is established in the Income Tax Act for the purpose of relaxing the side effects arising from the principle of time-taxation 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 the expenses incurred in health insurance programs are clearly different from income tax in terms of their legislative purpose, legal character, and payment obligor, etc.

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, even though the National Health Insurance Act does not explicitly stipulate that the provisions on the deduction of carried-over losses under the Income Tax Act apply to the provisions on the deduction of carried-over losses under the Income Tax Act, it 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 amount of business income under Article 19(2)

(2) Nevertheless, the lower court determined that the instant disposition was unlawful on the premise that business income under Article 41(1)3 of the former Enforcement Decree of the National Health Insurance Act was the amount calculated by additionally deducting carried forward losses from business income under Article 19(2) of the former Income Tax Act. In so determining, the lower court erred by misapprehending the legal doctrine on business income, which serves as the basis for calculating national health insurance premium points, thereby adversely affecting the conclusion of the judgment.

3. Conclusion

The Defendant’s appeal is with merit, and 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.

Justices Kim Chang-suk (Presiding Justice)