Loyalty points and EU VAT: understanding the Lyko decision

Lyko involved a Swedish retailer's plan allowing customers to use loyalty points earned from past purchases to choose small premium items during a subsequent purchase. The court questioned whether these points qualify as 'vouchers' under the VAT Directive¹ (Article 30a) and, if so, how to calculate the taxable amount under Article 73a. The Court decided they aren't vouchers because they don't require the merchant to accept the points as payment; instead, they offer a price advantage linked to a later purchase.

For a supply to be a 'voucher' from an EU VAT perspective, two conditions must be met: (i) an obligation to accept it as payment for goods or services, and (ii) the goods or services or their suppliers are identified on the instrument or related documentation. The Voucher Directive² clarifies that instruments offering a discount without the right to receive goods or services aren't covered by voucher rules.

Thus, a 'voucher' is defined by the entitlement it provides and the obligation to accept it as consideration for a supply of goods or services. This was central to the Court's decision. The points don't require the supplier to accept them as payment. They simply allow the holder to get additional goods when making a future purchase.

_{¹ Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
² COUNCIL DIRECTIVE (EU) 2016/1065 of 27 June 2016 amending Directive 2006/112/EC as regards the treatment of vouchers}

The legal definition matters because it determines the VAT treatment of the transactions affected by the voucher or discount.

Taxable amount (base)

• If a promotion qualifies as a discount, the taxable amount excludes the discount, aligning the customer's VAT burden with the actual price paid. If the reduction is granted at the time of supply, it reduces the base then; if granted post supply, Member States require a correcting entry (e.g., credit note) under local rules.
• If a promotion qualifies as a voucher, it represents value exchanged. The taxable amount reflects the consideration for the underlying supply.

Invoice and receipt content

The VAT Directive requires invoices to show price reductions (discounts/rebates) if not embedded in the unit price. For vouchers, there's no discount line, and the invoice should display the taxable amount and VAT (depending on the voucher type) as usual, with the voucher value recorded as the means of settlement. Fiscal receipt requirements (typically in B2C contexts) may vary by Member State.

Time of supply and VAT reporting: SPVs vs. MPVs

The VAT Directive differentiates single-purpose vouchers (SPVs) from multipurpose vouchers (MPVs). For SPVs, VAT is due at each transfer by a taxable person acting in their own name; redemption isn't a separate taxable event. For MPVs, VAT is due only on redemption when the underlying goods or services are supplied.

Lyko addressed a simple, two-party, single-country, in-store scenario. Other loyalty programs can be more complex. Here are examples of complexities not covered by Lyko, though some may have been addressed in other CJEU cases:

• Intermediated or partner redemption: VAT analysis becomes more complex when the discount or voucher issuer differs from the redeemer. CJEU case law has addressed VAT treatment of discounts paid by a manufacturer but redeemed at a retail store.
• Mix of VAT rules: For online redemptions through marketplaces, additional VAT regimes may apply, including deemed supplier rules where the marketplace, not the seller, is responsible for VAT obligations. When these rules interact with loyalty program discounts, determining correct VAT treatment and ensuring proper reporting can become significantly more complex.
• Mixed baskets and multiple VAT rates: When a loyalty mechanism reduces the cash price across items with different VAT rates, ensuring the reduction is apportioned transparently and consistently can be complex.
• Breakage and expiry: As noted by Advocate General Kokott in her opinion in Lyko, unused points or expired instruments can have different VAT consequences depending on whether the instrument is a voucher (and, if so, SPV vs. MPV) or a mere discount right. Unused MPVs generally have no VAT implications since VAT is only triggered upon redemption (which doesn't occur if the voucher is never redeemed). In contrast, SPVs are taxed upfront upon issuance, meaning VAT is remitted to tax authorities regardless of redemption.
• Beyond the EU: CJEU case law, including Lyko, applies across all EU Member States. However, for multijurisdictional loyalty programs extending beyond the EU, VAT interpretation may vary significantly by country. These divergent approaches can create practical challenges when implementing loyalty programs in global ERP systems, ideally requiring a streamlined and consistent VAT treatment across jurisdictions.

The Lyko ruling interprets EU VAT rules against a specific loyalty scheme background. Despite the clarification, open questions remain given the diversity and creativity of loyalty schemes, and the fact that the CJEU can only answer specific questions tied to a particular factual background.

Questions were raised to the CJEU in December 2025 in the Modelo Continente Hipermercados case (T914/25) which keeps the spotlight on timing and proof of discounts. The main question is when a retailer grants a discount at purchase, usable only on a subsequent purchase, must the reduction materialise immediately, or can it crystallise later? The answer will influence how businesses evidence consumer-level discounts. Monitoring this development is prudent.

Companies offering loyalty schemes or similar promotions should use this opportunity to reassess the VAT treatment of every element of the schemes: confirm the correct VAT classification (voucher vs. discount), align invoicing and receipt content, ensure VAT reporting is accurate, and reconcile the audit trail so accounting, invoicing, and VAT treatment match end-to-end. Handling complex cross-border, online, and in-store loyalty schemes requires extra alignment between potentially EU and non-EU rules and interconnections between various concepts.