Ask any law student about their daily routine, and you will hear a familiar story of daily survival against an unrelenting avalanche of cases. With thick case lists and recitations looming over us on a daily basis, reading separate opinions—whether concurring or dissenting—often feels like a luxury we simply cannot afford. We read the ponencias, digest the ratio decidendi, and move on to the next item on list.
Yet every now and then, a case comes along where reading the majority decision leaves you with a lingering sense of unease. As I was digesting the recent Supreme Court decisions involving tax, I came upon the Court’s decision in Commissioner of Internal Revenue v. G&W Architects, Engineers, and Project Development Consultants Co. (G.R. No. 246026). While reading this case, I found myself instinctively turning to the separate opinions in search of a “teammate”: a voice on the Bench that articulated the very statutory concerns taking shape in my mind.
The core tax controversy: Assessing Expanded Withholding Tax (EWT) to the payee
At the heart of this case lies a high-stakes tax assessment that touches upon a fundamental compliance dilemma: whether the Bureau of Internal Revenue (BIR) can assess deficiency EWT directly against an income earner when its payors fail to withhold.
G&W Architects, Engineers, and Project Development Consultants Co. (G&W Architects) have implemented a “Build-to-Own” scheme in constructing several condominium projects, pooling buyers’ funds into bank trust accounts. The developer initially obtained confirmatory BIR rulings stating that the scheme was not a taxable sale and thus not subject to creditable withholding taxes. Years later, the BIR revoked these rulings via Revenue Memorandum Circular (RMC) No. 55-2010 and assessed G&W Architects for hundreds of millions of pesos in deficiency Documentary Stamp Tax (DST) and EWT.
The reason behind the BIR’s revocation
Section 246(b) of the Tax Code permits the retroactive revocation of a BIR ruling if facts gathered during a subsequent investigation are materially different from those originally represented by the taxpayer.
In its request for rulings, G&W Architects represented that it acted merely as an architect and project manager receiving a modest professional fee, while unit owners directly pooled their money to buy land and fund construction. However, a field investigation by the BIR revealed a fundamentally different economic reality. Concluding that the “Build-to-Own” label was merely a disguised pre-selling scheme, the BIR revoked the rulings and retroactively assessed deficiency taxes.
The majority of the Supreme Court 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. Addressing the EWT assessment, the majority acknowledged that under standard tax rules, withholding tax is remitted at source by the payor (the buyer) as a government collecting agent. However, the Court observed that G&W’s unit buyers had relied in good faith on G&W Architects’ representations that it is tax exempt.
The spectrum of BIR withholding tax exemption certificates
This Supreme Court decision brings to light the absolute criticality of securing and managing formal Certificates of Tax Exemption (CTEs) and confirmatory rulings. In Philippine tax practice, payors are strictly mandated to withhold taxes on income payments unless the payee presents a valid, subsisting BIR CTE or ruling.
Over the years, the BIR has issued distinct frameworks for withholding tax exemptions across various transaction types:
EWT/Final Withholding Tax (FWT) exemption certificates
During the tenure of the past BIR Commissioner, the BIR significantly tightened withholding tax compliance. The BIR established that tax-exempt entities and payees claiming preferential rates or exemptions under tax treaties or special laws must formally apply for and secure a CTE or confirmatory ruling.
A mere claim of tax exemption by a payee is legally insufficient. If a payee fails to present a valid BIR-issued CTE to its withholding agent prior to payment, the payor is legally required to withhold EWT or FWT. Failing to do so exposes the payor to deficiency withholding tax assessments.
Withholding Tax on Compensation (WTC) exemption on separation pay
In my previous article, Taxation of separation pay, I discussed that separation pay received by an employee is exempt from income tax and from WTC if the separation is due to death, sickness, or other physical disability, or for any cause beyond the control of the employee (i.e., installation of labor-saving devices, redundancy, retrenchment or downsizing, or closure or cessation of operation). However, employers cannot unilaterally grant this tax exemption. To safely omit WTC on separation packages arising from involuntary causes or health reasons, the BIR requires the employer to submit an application for a CTE/BIR ruling from the BIR. Without a BIR-issued CTE or ruling confirming the exemption, the employer risks being assessed for deficiency WTC.
Jointing the dissent
While the majority’s motivation to protect innocent condominium buyers is commendable, this is precisely where I found my “teammate” in the dissenting opinions. Concurring with the imposition of DST, one Associate Justice offered a compelling dissent on shifting the EWT liability to the payee.
The dissenting opinion reminded us of a fundamental rule every law student learns 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.
To grasp why this judicial shift is hazardous, one must understand the fundamental mechanics of withholding taxes. As aptly discussed in one of the dissenting opinions, EWT is not an independent, standalone tax, imposed on top of income; it is merely 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 rather than 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, forcing it to subsequently pay deficiency EWT on that same income results in an unjust double taxation which will be a big blow to taxpayers since they will be paying the same tax twice without the benefit of tax credit. In this case, the BIR made no finding that G&W Architects failed to pay its regular corporate income taxes. Assessing a deficiency EWT against the payee without establishing an actual income tax deficit penalizes the payee for a duty the law explicitly placed on someone else.
The dangerous precedent: When “good faith” overrides statutory liability
The most interesting aspect of the majority opinion lies in setting aside explicit statutory liability simply because one party acted in “good faith.” Withholding liability is a strict statutory duty imposed on the payor to guarantee collection at source. When courts bypass this statutory mandate to shield a “good faith” withholding agent and directly target the payee instead, it creates a dangerous precedent that threatens to disrupt administrative tax enforcement across multiple sectors.
Consider the potential fallout if this rationale is extended to other tax compliance scenarios:
The cross-border jurisdictional nightmare
A domestic corporation pays service fees to a non-resident foreign corporation, 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/TTRA after re-evaluating the foreign payee’s permanent establishment status.
Under established statutory mechanics, the local payor is held liable as the withholding agent for the unpaid FWT. However, if the local payor invokes “good faith” reliance under this new doctrine, can the BIR shift the FWT assessment directly to the foreign payee? The result would be an administrative stalemate. The BIR has no jurisdiction to enforce tax assessment against non-resident foreign entities operating outside the Philippines. By releasing the local withholding agent from statutory liability based on “good faith”, the government effectively cripples its own ability to collect cross-border taxes.
The separation pay nightmare
Suppose an employer retrenches employees and pays tax-free separation packages after securing a BIR CTE. Years later, during an audit, the BIR revokes the exemption certificate upon discovering that the retrenchment criteria were not strictly met. Under Section 80 of the Tax Code, the employer is held liable for unwithheld WTC.
However, if this precedent is applied, holding that “good faith” payors should not bear withholding liabilities, the employer could argue that it relied in good faith on the initial exemption. Would the BIR then shift the deficiency of tax liability directly onto the unemployed workers years after they received their severance? Forcing former employees to pay back taxes out-of-pocket because their employer’s exemption was revoked would lead to absurd and devastating socioeconomic consequences.
Stare decisis impact on BIR audits
Under Article 8 of the Civil Code, judicial decisions applying or interpreting the laws or the Constitution form a part of the legal system of the Philippines. Whenever the Supreme Court issues a landmark tax ruling, the BIR routinely formalizes the doctrine into administrative law, typically by issuing an RMC or incorporating the ruling into Revenue Audit Memorandum Orders (RAMOs) to guide its Revenue Officers during filed audits.
In light of this case, tax practitioners and taxpayers must prepare for how the BIR will operationalize this doctrine during future tax assessments. Revenue officers will no longer feel strictly constrained to assess only the withholding agent when unwithheld income payments are discovered. Instead, the BIR will likely draft audit guidelines to bypass the withholding agent and assess deficiency EWT directly against the income earner or the payee.
A call for tax authority restraint
The government’s sovereign power of taxation is awesome, but it must be exercised strictly 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. Reconciling it in this case, while it is true that the buyers relied in good faith on the representations of the payee, it is not right to shift the EWT burden to the payee especially if they already paid the income tax which basically covers the EWT that should have been withheld by the buyers.
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 statutory adherence are for business operations and compliance. As a law student, I am taught that judicial interpretation must always 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. admirably reinforces the Court’s scrutiny over property transactions. Yet, the dissenting opinions perform a vital service. They remind us that the law is a living, thoughtful dialogue—one where every statutory nuance counts.
As published in BusinessWorld, dated 27 October 2026
