CJEU Decision Brings Clarity on VAT treatment of Loyalty Points
On 5th March 2026, the Court of Justice of the European Union (CJEU) delivered its judgment on the VAT treatment of customer loyalty programmes in Case C‑436/24, Skatteverket v Lyko Operations AB. The Court ruled that loyalty points which customers can only redeem by making a subsequent purchase from the retailer, do not constitute vouchers for VAT purposes under the EU VAT Directive. This decision clarifies the correct VAT treatment of loyalty points, removing uncertainty for businesses which operate points-based loyalty schemes within the EU.
What did the CJEU case concern?
Lyko Operations AB (Lyko), a Swedish retailer of hair‑care and beauty products, intended to establish a customer loyalty programme which enabled customers to earn points, based upon the amount spent on previous purchases they made from Lyko. Those points could then be used to purchase other Lyko products, generally of low value, via a dedicated ‘points shop’, but this could only occur when the customer made a further purchase from Lyko. The loyalty points would be non‑transferable, have no cash value, and would not be exchanged for money, and would expire after a set time period.
To obtain certainty regarding the VAT treatment of the loyalty programme, Lyko asked the Swedish tax authority whether the points granted under the programme qualify as a multi voucher (MPV), under Articles 30a and 30b of the EU VAT directive. The Swedish tax authority view was that the loyalty points did not qualify as a voucher, the loyalty points were a discount or promotion mechanism and therefore would be treated under normal VAT rules. The matter was subsequently referred to the CJEU to obtain a ruling.
What did the CJEU consider in order to reach a decision?
The Court focused on the statutory definition of a “voucher” in Article 30a(1) of the EU VAT Directive. For an instrument to qualify as a voucher, two cumulative conditions must be met:
- There must be an obligation on the supplier to accept the instrument (in this case the points) as consideration or part‑consideration for a supply of goods or services; and
- The goods or services to be supplied (or the potential suppliers) must be identifiable.
The Court found that Lyko’s loyalty points failed the first condition listed above. The loyalty points did not oblige Lyko to supply goods, in exchange for the points themselves. Instead, they merely entitled the customer, if they chose to make a further purchase, to receive additional goods as a bonus.
In the Court’s view, this meant the points functioned economically as a discount on a future transaction, not as consideration in their own right. Because the first condition was not met, the Court did not need to consider the second condition or the related question on the taxable amount.
Practical impact of the CJEU judgement
The ruling from the CJEU in relation to loyalty point schemes, means that the following applies:
- The initial sale giving rise to the points is subject to VAT on the full consideration paid by the customer.
- When points are redeemed, VAT is due only on the amount actually paid for the subsequent purchase (i.e. the discounted price).
- Unredeemed or expired points do not give rise to any VAT adjustment, as they have no independent VAT relevance.
Risks for suppliers
While the judgment provided clarity in respect of loyalty point schemes, it also highlights several ongoing risks for suppliers:
- Scheme design risk: Loyalty programmes are highly fact‑ Where points or credits can be used as full or partial payment, or where the supplier is contractually obliged to accept them as consideration, the voucher regime may still apply.
- Mixed models: Hybrid schemes that allow redemption both with and without an additional payment may produce different VAT outcomes.
- Implementation risk: Incorrect classification of a scheme as a voucher (or non‑voucher) can lead to under‑ or over‑declaration of VAT, creating exposure to assessments, interest and penalties.
Conclusion
The CJEU decision confirms that loyalty points, redeemable only alongside a further purchase, are not VAT vouchers and should be treated as discounts under general VAT principles. While this brings welcome clarity, suppliers should continue to review any loyalty scheme which they operate to ensure the VAT treatment reflects their legal and economic reality.