Quick Read
- The Court of Tax Appeals voided the rule behind the online seller withholding tax on October 22, 2026, finding Revenue Regulations 16-2023 was issued without prior notice and hearing, and Revenue Memorandum Circular 8-2024 fell with it.
- Four banks brought the case, and the order enjoins the Secretary of Finance and the Commissioner of Internal Revenue from implementing the voided issuances.
- The court did not decide the 15 percent limit or whether e-marketplace operators and digital financial services providers can lawfully be made withholding agents.
- Withholding was a creditable prepayment, so sellers above the ₱500,000 threshold still owe income tax and lose only the automatic holdback.
- The decision is silent on RR 5-2025, on amounts already withheld, and on what platforms outside the case must do now.
The Court of Tax Appeals has voided the rule that made e-marketplace operators and digital financial services providers (DFSPs) withhold tax from online sellers, but the income tax those sellers owe is untouched. The online seller withholding tax came from Revenue Regulations (RR) No. 16-2023, issued by the Department of Finance and the Bureau of Internal Revenue (BIR), and the court struck it down because it was issued without prior notice and hearing. That is a defect in how the rule was made, not a ruling on what it charged.
The Court Voided the Rule on Process, Not on Substance
In CTA Case No. SCA-0027, promulgated October 22, 2026, the Special First Division granted a petition filed by BPI, EastWest Bank, RCBC and Security Bank against the Secretary of Finance and the Commissioner of Internal Revenue. The banks filed on November 13, 2024, a month after the withholding duty took full effect on October 13, 2024.
The court treated RR 16-2023, the regulation behind the online seller withholding tax, as a legislative rule. Before it, e-marketplace operators and DFSPs had no duty to withhold on their gross remittances to sellers, so the regulation created a new obligation. A rule that does that needs prior notice and a chance for affected parties to be heard.
The decision says the respondents did not answer the banks’ lack-of-notice argument in their comment or memorandum, and that nothing in the records showed it was impracticable to consult. The court called the failure “a fatal defect that taints the validity of the regulation.”
Revenue Memorandum Circular (RMC) No. 8-2024 fell with it. The court treated the circular as interpretative, so notice and hearing did not apply to it, but a circular written only to clarify a void regulation cannot stand alone. The order enjoins the Secretary of Finance and the Commissioner, “or any person duly acting on their behalf,” from implementing either issuance.
The Online Seller Withholding Tax Was Always a Prepayment
RR 16-2023 set a 1 percent rate on one-half of the gross remittances that platforms and DFSPs paid to sellers. RR 5-2025 later changed the formula to one-half percent of gross remittances, which works out to the same 0.5 percent. Sellers whose gross remittances stayed at or below ₱500,000 were exempt, and above that the platform or DFSP deducted the tax before paying out.
The regulation described the tax as income tax whose burden falls on the seller, and the court called it a creditable withholding tax. The BIR said in July 2024 that it was collected at source and credited against sellers’ total income tax liability. Voiding the rule removes the holdback. It does not remove the income tax, and nothing in the decision says it does.
Sellers above the threshold now carry the full amount to filing day with no automatic prepayment during the year. The online seller withholding tax was never the liability. It was how the liability got collected.
Platforms and Payment Providers Now Decide Without a Clear Rule
The order declares both issuances void, so each platform and DFSP now has to decide whether to keep collecting the online seller withholding tax. The order does not limit the declaration to the four banks, and it says nothing about what operators outside the case must do next. A platform that keeps deducting is collecting under a regulation a court has declared void. A platform that stops is betting the ruling holds.
Open items make that bet harder to read. The decision does not mention RR 5-2025, which amended the rate provision that RR 16-2023 created. It does not address the amounts already withheld and remitted since the duty took effect. It also does not mention RMC No. 55-2026, which the BIR issued in May 2026 to remind withholding agents, including e-marketplace operators and DFSPs, to file alphalists. That circular noted that many of them had not complied with the duty to withhold under RR 16-2023 as amended by RR 5-2025, and the alphalist duty itself rests on older regulations the decision does not address.
A Reissue After Consultation Would Answer the Defect the Court Found
The Administrative Code provision the court applied requires agencies, as far as practicable, to publish or circulate notices of proposed rules and give interested parties a chance to submit their views before adoption. The decision found nothing in the records showing that consultation was impracticable here. A fresh issuance that follows that process would answer the one defect the court found.
The court did not decide the other grounds the banks raised, including the 15 percent limit under Section 57(B) of the Tax Code and whether DFSPs can lawfully be made withholding agents. Those arguments stay open against a reissued online seller withholding tax rule.
The ruling also comes from one Division of the court. Division rulings can be taken to the CTA En Banc and then to the Supreme Court, and no reconsideration motion or appeal had been reported at the time of writing.
The collection channel the BIR built has lost its legal basis for now, and the cost of that falls first on the BIR. Sellers above ₱500,000 hold the rest: the same income tax, due in full, with no holdback spreading it across the year. What moves next is the BIR’s choice between a motion for reconsideration, an appeal and a consulted reissue.
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