The companies NCL Investments Ltd and Smith & Williamson Corporate Services Ltd (the Companies) had granted its employees stock options to acquire shares in the ultimate holding company, Smith & Williamson Holdings Limited (SWHL). The companies employ staff and make those staff available to other companies in the group in return for a fee. That fee is based on the costs that the companies incur in employing the staff, marked up with a profit element. The Companies claimed deductions in the computation taxable profits. The tax authorities accepted that IFRS2 required the Companies to recognise an expense in their income statements equal to the fair value of the options, but held that the debits were inapt to affect the profits of the Companies for corporation tax purposes. These transactions were treated by IFRS2 as a capital contribution (benefit) granted by SWHL to the Companies. The Debits did not represent any cost to the Companies, nor did they anticipate or reflect an actual cost which would arise in the future. On that basis tax authorities disallowed deductions for corporate tax purposes. An appeal was filed by the companies which was allowed by the lower courts. Appeals were then filed by the tax authorities. Judgement of the Supreme Court The Supreme Court dismissed the tax authorities’ claims and decided in favour of the Companies ...