Ask any law student about their daily routine and you will hear a familiar story of daily survival amid an unrelenting avalanche of cases. With lengthy case lists and recitations looming every day, reading separate opinions—whether concurring or dissenting—often feels like a luxury. We read the ponencia—the majority opinion written for the Court—digest the ratio decidendi, the binding core of its legal reasoning, and move on to the next item.

Yet every so often, a case comes along in which reading the majority decision leaves a lingering sense of unease. While reviewing recent Supreme Court decisions involving taxation, I encountered the Court’s ruling in Commissioner of Internal Revenue v. G&W Architects, Engineers, and Project Development Consultants Co. (G.R. No. 246026, the Court’s docket designation for the case). I found myself turning instinctively to the separate opinions in search of a “teammate”—a voice on the Bench articulating the statutory concerns taking shape in my mind.

Assessing EWT to the payee

At the heart of the case is a high-stakes tax assessment involving a fundamental compliance question: whether the Bureau of Internal Revenue (BIR) may assess deficiency expanded withholding tax (EWT) directly against an income earner when its payors fail to withhold. Withholding taxes sit at the center of Philippine income-tax collection, and the EWT in particular attaches to routine income payments such as professional fees, rentals, and payments to contractors, so the question of who bears the obligation arises in ordinary business dealings of every size.

G&W Architects, Engineers, and Project Development Consultants Co. (G&W Architects) implemented a “Build-to-Own” scheme for several condominium projects, pooling buyers funds into bank trust accounts. The developer initially obtained confirmatory BIR rulings stating that the arrangement was not a taxable sale and therefore was not subject to creditable withholding taxes.

Years later, the BIR revoked those rulings through Revenue Memorandum Circular (RMC) No. 55-2010 and assessed G&W Architects for hundreds of millions of pesos in deficiency Documentary Stamp Tax (DST)—a levy on the execution of documents and instruments—and EWT.

Why the BIR revoked its rulings

Section 246(b) of the Tax Code permits the retroactive revocation of a BIR ruling when facts discovered during a subsequent investigation are materially different from those originally represented by the taxpayer.

In its requests for rulings, G&W Architects represented that it acted merely as an architect and project manager receiving a modest professional fee. It also represented that unit owners directly pooled their money to acquire land and finance construction. A BIR field investigation, however, revealed what the agency considered a fundamentally different economic reality.

The BIR concluded that the “Build-to-Own” label was a disguised pre-selling scheme. It therefore revoked the rulings and retroactively assessed deficiency taxes.

The Supreme Court majority reclassified the arrangement from a contract for a piece of work to a contract of sale and held G&W Architects liable for both DST and EWT. In addressing the EWT assessment, the majority acknowledged that under the standard tax rules, withholding tax is remitted at source by the payor—the buyer—acting as the government’s collecting agent. The Court also observed that G&W’s unit buyers had relied in good faith on G&W Architects’ representations that the arrangement was tax-exempt.

BIR withholding tax exemption certificates

The decision highlights the importance of securing and managing formal Certificates of Tax Exemption (CTEs) and confirmatory rulings. In Philippine tax practice, payors must withhold taxes on income payments unless the payee presents a valid and subsisting BIR CTE or ruling.

Over the years, the BIR has established separate frameworks for withholding tax exemptions covering various types of transactions.

EWT and final withholding tax exemption certificates

During the tenure of a past BIR Commissioner, the BIR significantly tightened withholding tax compliance. It established that tax-exempt entities and payees claiming preferential rates or exemptions under tax treaties or special laws must formally apply for and obtain a CTE or confirmatory ruling.

A payee’s mere assertion of tax exemption is legally insufficient. If the payee does not present a valid BIR-issued CTE to the withholding agent before payment, the payor is legally required to withhold EWT or final withholding tax (FWT). Failure to do so exposes the payor to deficiency withholding tax assessments.

Withholding tax on compensation and separation pay

In my previous article, “Taxation of separation pay,” I wrote that separation pay received by an employee is exempt from income tax and withholding tax on compensation (WTC) when the separation results from death, sickness, or another physical disability, or from a cause beyond the employee’s control. Examples include the installation of labor-saving devices, redundancy, retrenchment or downsizing, and the closure or cessation of operations.

Employers, however, cannot grant this exemption unilaterally. To safely omit WTC from separation packages arising from involuntary causes or health-related circumstances, the BIR requires the employer to submit an application for a CTE or BIR ruling. Without a BIR-issued CTE or ruling confirming the exemption, the employer risks an assessment for deficiency WTC.

Joining the dissent

The majority’s motivation to protect innocent condominium buyers is commendable. This is also where I found a “teammate” in the dissenting opinions. While concurring in the imposition of DST, one Associate Justice offered a compelling dissent against shifting EWT liability to the payee.

The dissent recalled a fundamental rule taught to law students in Statutory Construction and Taxation Law: tax statutes are strictly construed against the government and liberally in favor of the taxpayer. Under Section 57(B) of the Tax Code, the legal obligation to withhold and remit EWT rests squarely on the payor—the buyer—not on the income recipient.

Understanding why this judicial shift is hazardous requires an understanding of the mechanics of withholding taxes. As discussed in one of the dissenting opinions, EWT is not an independent, standalone tax imposed on top of income. It is an advance installment or deposit toward the payee’s final annual income tax.

When a buyer fails to withhold EWT, the income earner receives the full gross payment instead of the net amount. The income earner remains obligated to report that gross income and pay its full income tax liability at year-end.

If an income earner has already paid its corporate income tax in full, requiring it to later pay deficiency EWT on the same income creates unjust double taxation. This would be a significant burden for taxpayers because they would pay the same tax twice without receiving the benefit of a tax credit.

In this case, the BIR made no finding that G&W Architects had failed to pay its regular corporate income taxes. Assessing deficiency EWT against the payee without establishing an actual income tax deficit penalizes the payee for a duty that the law expressly placed on another party.

When good faith overrides statutory liability

The most notable aspect of the majority opinion is its setting aside of explicit statutory liability because one party acted in good faith. Withholding liability is a strict statutory duty imposed on the payor to ensure collection at source.

When courts bypass that statutory mandate to shield a good-faith withholding agent and target the payee instead, it creates a precedent that could disrupt administrative tax enforcement across multiple sectors. The potential consequences become clearer when the rationale is applied to other tax-compliance situations.

The cross-border jurisdictional problem

Suppose a domestic corporation pays service fees to a nonresident foreign corporation while relying on an initial Request for Confirmation (RFC) or Tax Treaty Relief Application (TTRA) granting zero or reduced FWT. Years later, the BIR revokes the RFC or TTRA after reevaluating the foreign payee’s-establishment status.

Under established statutory mechanics, the local payor is liable as the withholding agent for the unpaid FWT. But if the local payor invokes good-faith reliance under this doctrine, can the BIR shift the FWT assessment directly to the foreign payee?

The result could be an administrative stalemate. The BIR has no jurisdiction to enforce a tax assessment against nonresident foreign entities operating outside the Philippines. By releasing the local withholding agent from statutory liability on the basis of good faith, the government could undermine its own ability to collect cross-border taxes.

The separation-pay problem

Consider an employer that retrenches employees and pays tax-free separation packages after securing a BIR CTE. Years later, during an audit, the BIR revokes the exemption certificate after discovering that the retrenchment criteria were not strictly met. Under Section 80 of the Tax Code, the employer is liable for unwithheld WTC.

If the precedent is applied to hold that good-faith payors should not bear withholding liabilities, the employer could argue that it relied in good faith on the original exemption. Would the BIR then shift the deficiency tax liability directly to unemployed workers years after they received their severance pay?

Requiring former employees to pay taxes out of pocket because their employer’s exemption was revoked would produce absurd and devastating socioeconomic consequences.

The impact of stare decisis on BIR audits

Under Article 8 of the Civil Code, judicial decisions applying or interpreting laws or the Constitution form part of the legal system of the Philippines. Stare decisis—the doctrine of standing by things decided—is what gives these rulings their reach beyond the immediate parties. When the Supreme Court issues a landmark tax ruling, the BIR routinely formalizes the doctrine in administrative law, typically by issuing an RMC or incorporating the ruling into Revenue Audit Memorandum Orders (RAMOs) that guide its Revenue Officers during audits.

In light of this case, tax practitioners and taxpayers must prepare for how the BIR will operationalize the doctrine in future assessments. Revenue officers may no longer feel strictly constrained to assess only the withholding agent when they discover unwithheld income payments. Instead, the BIR could draft audit guidelines allowing it to bypass the withholding agent and assess deficiency EWT directly against the income earner or payee.

A call for restraint by tax authorities

The government’s sovereign power of taxation is substantial, but it must be exercised within the limits prescribed by Congress. When tax authorities fail to collect EWT from statutory withholding agents, their legal remedy lies against those agents—not against the payee under the guise of equity.

In this case, although the buyers relied in good faith on the payee’s representations, it is not appropriate to shift the EWT burden to the payee, particularly if the payee has already paid the income tax that effectively covers the EWT the buyers should have withheld.

If the State wants the power to hold income earners directly liable for unwithheld taxes in cases of misrepresentation, it must ask Congress to amend the Tax Code. Until then, tax liability cannot be reassigned at will. In taxation, adherence to statutory text is not a mere technicality; it is the ultimate shield protecting citizens from arbitrary power.

A dual-perspective reflection

As a tax practitioner, I see firsthand how vital tax predictability and adherence to statutes are to business operations and compliance. As a law student, I am taught that judicial interpretation must remain anchored to the statutory text enacted by Congress.

The majority decision in Commissioner of Internal Revenue v. G&W Architects, Engineers, and Project Development Consultants Co. reinforces the Court’s scrutiny of property transactions. Yet the dissenting opinions perform an important service. They remind us that the law is a living and thoughtful dialogue in which every statutory nuance matters.

Runell Alvyn V. Sarmiento is a manager in the Tax Advisory & Compliance practice area at P&A Grant Thornton.

business.development @ph.gt.com

www.grantthornton.com.ph

Source: https://bworldonline.com/economy/2026/10/26/789476/why-shifting-withholding-tax-burdens-sets-a-perilous-precedent