Summary
Summary
The article discusses a case involving a Swedish retailer’s loyalty program where customers earn points based on purchases. These points can only be redeemed for low-value goods and do not have monetary value. The retailer sought clarification on whether these loyalty points should be considered vouchers under the EU VAT Directive.
Background
Lyko Operations AB, a Sweden-based retailer of hair-care and beauty products, operates a customer loyalty program in which customers “earn” points based on their previous purchases. Customers can redeem points only after a subsequent purchase, and only for “low-value” goods offered by the retailer.
The low-value products that could be “exchanged” with the collected loyalty points could have different VAT rates.
The points cannot be used as full or partial consideration for a subsequent purchase; don’t have monetary value; and cannot be transferred to other customers. Customers could join the loyalty program for free and earn points with each purchase.
Lyko Operations asked the Swedish Revenue Law Commission whether the loyalty program involves the supply of multi-purpose vouchers to its customers under the EU VAT Directive. If that were the case, the retailer would like to know how the taxable amount should be calculated when the loyalty program is redeemed.
The Revenue Law Commission decided that loyalty points collected and used in this manner don’t constitute vouchers, as they lack specific monetary value, and aren’t purchased separately. Following this decision, the retailer and the Swedish Tax Agency appealed to the Supreme Administrative Court.
The Swedish Tax Agency stated in its plea that it aligns with the Revenue Law Commission’s decision, while Lyko Operations argued that the loyalty points should qualify as vouchers and that the taxable amount upon redemption should be SEK 0.
The Swedish Supreme Administrative Court(Court) found uncertainty on how the EU’s VAT Directive Articles concerning “voucher” should be interpreted in relation to this specific loyalty scheme, and it requested a preliminary ruling from the CJEU based on two submitted questions.
The request for a preliminary ruling concerns the interpretation of Articles 30a and 73a of the EU VAT Directive, and of recitals 1, 2, 4, and 6 of Council Directive 2016/1065 of 27 June 2016 amending the VAT Directive, as regards the treatment of vouchers.
Questions for a Preliminary Ruling
The Swedish Supreme Administrative Court decided to pause its judicial proceedings and to refer the following two questions to the Court of Justice for a preliminary ruling:
First question:” Does an instrument in the form of points – such as that at issue in the main proceedings – constitute a voucher as defined in Article 30a of the VAT Directive where the points are awarded under a customer loyalty programme designed in such a way that a customer who purchases goods obtains points according to the size of the purchases and is then entitled, when making a future purchase, to use the points to obtain further goods from the seller’s range?”
Through the first question, the Court asks whether the loyalty points should be treated as a “voucher” awarded to Lyko’s customers under the loyalty program.
Second Question – “If the answer to Question 1 is [in the affirmative], how is the taxable amount under Article 73a of the VAT Directive to be determined when the points are used to obtain goods from the seller?”
The second question becomes relevant only if the answer to the first question is affirmative, which implies that the CJEU should elaborate on how the VAT taxable amount should be determined when loyalty points are redeemed for goods.
Applicable EU Law
The following Council Regulations, with specified Articles, are the main point of reference for the CJEU for resolving this case:
Recitals 1, 2, 4, and 6 of Council Directive 2016/1065 of 27 June 2016 amending the EU VAT Directive as regards the treatment of vouchers. The excerpt from the Council Directive is quoted below:
(1) Directive [2006/112] sets out rules on the time and place of supply of goods and services, the taxable amount, the chargeability of [VAT], and the entitlement to deduction. Those rules, however, are not sufficiently clear or comprehensive to ensure consistent tax treatment of transactions involving vouchers, with undesirable consequences for the proper functioning of the internal market.
(2) To ensure certain and uniform treatment, to be consistent with the principles of a general tax on consumption exactly proportional to the price of goods and services, to avoid inconsistencies, distortion of competition, double or non-taxation, and to reduce the risk of tax avoidance, there is a need for specific rules applying to the VAT treatment of vouchers.
(4)Only vouchers that can be used for redemption against goods or services should be targeted by these rules. However, instruments entitling the holder to a discount upon purchase of goods or services but carrying no right to receive such goods or services should not be targeted by these rules.
(6) So as to identify clearly what constitutes a voucher for the purposes of VAT and to distinguish vouchers from payment instruments, it is necessary to define vouchers, which can have physical or electronic forms, recognising their essential attributes, in particular the nature of the entitlement attached to a voucher and the obligation to accept it as consideration for the supply of goods or services.’
The citation of Articles 30a and 73a of the EU VAT Directive:
Article 30a
For the purposes of this Directive, the following definitions shall apply:
(1) ‘voucher’ means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services and where the goods or services to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument;
(2) ‘single-purpose voucher’ means a voucher where the place of supply of the goods or services to which the voucher relates, and the VAT due on those goods or services, are known at the time of issue of the voucher;
(3) ‘multi-purpose voucher’ means a voucher, other than a single- purpose voucher.
Article 73a
Without prejudice to Article 73, the taxable amount of the supply of goods or services provided in respect of a multi-purpose voucher shall be equal to the consideration paid for the voucher or, in the absence of information on that consideration, the monetary value indicated on the multi-purpose voucher itself or in the related documentation, less the amount of VAT relating to the goods or services supplied.
Sweden National VAT Rules
The Sweden Law on VAT (2023:200) includes provisions that correspond to Articles 30a and 73a of the VAT Directive.
Advocate General Opinion
The loyalty program is structured in a manner in which the customer who purchases products from the supplier collects points in a direct proportion to the transaction value, and when making their next purchase, it gets a chance to use those points to obtain additional products from the supplier, within the scope of “low-value” products listed by the vendor.
In accordance with the vendor’s terms and conditions, the Advocate General (AG) J. Kokott concluded that the loyalty points in this scenario cannot be treated as vouchers. They don’t constitute a voucher within the meaning of Article 30a of the EU VAT Directive.
The supplier isn’t obliged to accept loyalty points as consideration for supplying products. The AG notes that this loyalty point system constitutes only a discount on a future purchase.
Decision
The court decided that the loyalty points of this type don’t constitute a voucher within the meaning of Article 30a of the EU VAT Directive. Considering that the answer to the first question is a negative one, the Court emphasized that there was no necessity to elaborate on the second question.
The court based its decision on the substantive attributes of what is meant by “voucher” within the EU VAT Directive. An indelible attribute of the voucher is its use and acceptance as consideration. The obligation of the supplier to accept it as a consideration or part of it, for the supply of goods or services.
The court concluded that loyalty points that customers could collect from the retailer only provide them with an entitlement to a “gift of bonus item” that is conditional on a new purchase. In this scenario, the loyalty points function as a discount, not as a consideration.
Final Remarks
The European Court of Justice reaffirmed that discount instruments (in this case, loyalty points) are, in most circumstances, outside the scope of vouchers under EU VAT law.
Author: Aleksandar Delic
Indirect Tax Manager – E-Commerce
Frequently Asked Questions
No. According to the Court’s decision, loyalty points issued under this type of program do not qualify as vouchers under Article 30a of the EU VAT Directive because they are not accepted as consideration for goods or services.
Loyalty points are not considered vouchers because they lack monetary value, cannot be transferred, and are not purchased separately. Most importantly, the supplier is not obliged to accept them as payment or part payment for goods or services.
The Court classified loyalty points as a discount mechanism rather than a payment instrument. They provide entitlement to a benefit on a future purchase, not a standalone right to receive goods or services.
A voucher must be an instrument that the supplier is obliged to accept as consideration or part consideration for goods or services. This obligation is a fundamental condition under Article 30a of the EU VAT Directive.
Since loyalty points are treated as discounts rather than vouchers, VAT is applied to the final transaction price after the discount is applied, following standard VAT rules for discounted sales.
The primary question was whether loyalty points issued under a customer loyalty program qualify as vouchers under Article 30a of the EU VAT Directive. A secondary question concerned how to calculate the taxable amount if they were considered vouchers.
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