Cash gifts to employees were taxable as earnings

In 2007 and 2008 under a deferred share plan  two employees of the taxpayer subscribed for nil-paid shares in the company by way of loans from a group company. A few years later both resigned and in 2011 entered into call option agreements with the company. These included a tax indemnity for liabilities arising in connection with the sale of shares and/or the release of loans. In 2014 under further agreements cash gifts were made to the individuals to repay outstanding loans (with the amounts being directed to the lender entities) and other loans to the individuals were released in return for nominal payments.

The aim was to ensure the individuals were in an economically neutral position in respect of the shares which they would not have otherwise been because the shares had depreciated in value and were worth much less than...