The Tax Appeal Tribunal, Lagos Zone (TAT or the Tribunal) on the 15th of April 2016 delivered a landmark judgment in favour of Star Deep Water Petroleum Limited (Star Deep). The Tribunal held inter alia that a company without employees - but which carries out its business with employees of a related entity - is not liable to account for the taxes of the employees (PAYE tax). The issues in the case bothered on:

  1. Whether the Tax assessments issued on Star Deep has become final and conclusive in the absence of a Notice of Objection acknowledged by the LIRS.
  2. Whether a company without employees is required to remit PAYE (Pay As You Earn) and;
  3. Whether Star Deep deducted and remitted Withholding Tax to the LIRS in accordance with applicable laws.


Star Deep is a special purpose vehicle and an affiliate of Chevron Nigeria Limited (Chevron). It was set up to operate Oil Mining Lease 127 (OML 127) and Agbami Unit in Nigeria. To operate the projects, Star Deep entered into two agreements with Chevron. The first is the Nigeria/Mid-Africa SBU Master Service Agreement (MSA); the second agreement is Cost Sharing Agreement (CSA). The agreements allowed Star Deep use of Chevron's resources, including personnel, to enable it carry out its business activities. In 2011, LIRS audited the Star Deep's personal-income-tax compliance profile for 2005-2009 and claimed that Star Deep neither deducted PAYE nor remitted Withholding Tax for those years. LIRS assessed Star Deep to PAYE, Withholding Tax (WHT), State Development Levy and Business Premises Registration putting its outstanding Tax Liability at N 649,951,830.47 including penalty and interest. A demand notice was issued by the LIRS accordingly. Chevron claimed it forwarded a Notice of Objection to LIRS but could not furnish an acknowledged copy of the Notice of Objection. The LIRS also subsequently served on Star Deep a notice to obtain warrant of distrain. Star Deep filed this appeal against the demand notice and notice to obtain warrant of distrain.


The LIRS argued that the assessments had become final and conclusive because Star Deep could not prove that it forwarded the Notice of Objection to LIRS within 30 days of being served with the demand notice by furnishing an acknowledged copy of the Notice of Objection. LIRS further contended that Star Deep was liable to PAYE since the 2008 financial statement of the company made provisions for salaries and wages and that Star Deep is liable to PAYE Tax for the period under review. On WHT, LIRS argued that Star Deep carried out transactions with unincorporated entities for which it did not account for WHT and imposed additional liability.

In response, Star Deep contended that it forwarded the Notice of Objection to LIRS and even if that was not so, an assessment can no longer become final and conclusive for failure to serve Notice of Objection to LIRS within 30 days based on the deletion of Section 58 of PITA under the Personal Income Tax (Amendment) Act 2011. Star Deep relied on sections 81 & 82, PITA to argue that since it had no employees, it was not liable to deduct and remit PAYE and also that by virtue of the MSA and CSA, it carried out its business activities with Chevron's resources including employees.

On Withholding Tax, Star Deep argued that the LIRS' use of BOJ was faulty. Not only was the assessment excessive, the LIRS also failed to consider the remittances Star Deep made in prior years.


The Tribunal held that since Star Deep has no employees of its own, but makes use of Chevron's employees, it is not liable to deduct and remit PAYE and that any PAYE assessment on Star Deep cannot be valid, final and conclusive.

The Tribunal further held that the Withholding Tax assessment on Star Deep is not final and conclusive because the basis of assessment is faulty in law as it failed to comply with the provisions of PITA. The Respondent's BOJ assessment for WHT was set aside and the parties were directed to reconcile their positions.


The decision of the Tribunal in our opinion reflects the position of the applicable laws. PAYE assessment is based on the existence of an employment relationship. Where a company relies on the employees of another entity and such entity accounts for the taxes of the employees, the first mentioned company should not be held accountable for the PAYE tax of the employees concerned.

The decision also re-emphasizes the need for the Tax Authority not to be excessive, unreasonable and rash in imposing BOJ assessment.

This decision is indeed a welcome one

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