CJEU: VAT treatment of loyalty points
In its recent judgment in Case C 436/24 Lyko Operations, the Court of Justice of the European Union (CJEU) held that points awarded under a customer loyalty scheme do not constitute “vouchers” pursuant to the VAT Directive where their use is conditional upon making a further purchase. In such cases, the essential characteristic of a voucher is not met, as there is no legal obligation on the seller to accept the loyalty points as consideration for a subsequent supply.
The subject of the dispute was whether the rules on vouchers as defined by the VAT Directive should apply to loyalty points, which would affect the method of determining the VAT taxable amount. In this case, customers earned points depending on the volume of their purchases, and the points could not be transferred, exchanged for cash or combined with cash payments. Points could only be used on a subsequent purchase of selected goods from the seller’s range, which were usually of low value and subject to different VAT rates.
The CJEU emphasised that a voucher is only such an instrument where there is an obligation to accept it as consideration for the supply of goods or the provision of services. This also applies where the voucher specifies the goods to be supplied or the service to be provided, or identifies the potential suppliers.
In the present case, however, loyalty points do not constitute an obligation on the supplier to accept them as consideration, as their redemption is conditional upon a further purchase of goods from the supplier. The fact that the points can only be used in conjunction with a new purchase of goods is therefore crucial for VAT purposes. For these reasons, the CJEU ruled that, in this case, loyalty points cannot be regarded as single-purpose or multi-purpose vouchers within the meaning of the VAT Directive. The points from a loyalty scheme are therefore not subject to the special rules for vouchers, and the taxable amount on their use is governed by the standard rules.
The judgement provides guidance for companies operating loyalty schemes: if points serve solely as a bonus and do not constitute an obligation on the part of the supplier to accept them as consideration for the supply of goods or services, they do not fall under the voucher scheme under the VAT Directive.