EU Advocate General rules loyalty points function as discounts, not free vouchers, for VAT
On 11 September 2025, Advocate General (AG) Kokott of the Court of Justice of the European Union (CJEU) issued her Opinion in the Lyko case (C-436/24), concerning the VAT treatment of loyalty programs.
This would reshape VAT treatment of loyalty programs across the EU, altering costs, compliance, and business models.nBecause if the CJEU follows the AG’s opinion, loyalty points would no longer be treated as “free.” Instead, part of the original purchase price would have to be allocated to them, changing how VAT is calculated.
The EU is undertaking a review of VAT rules distinguish between single-purpose vouchers (SPVs) and multi-purpose vouchers (MPVs).
The case arose from Lyko, a Swedish retailer, which planned a scheme where customers earn points with purchases and later redeem them for goods, but only alongside a new purchase. The central question was whether these points qualify as vouchers under EU VAT law.
AG’s finds loyalty points are not vouchers for VAT
The AG concluded that Lyko’s loyalty points do not constitute vouchers. Because redemption is conditional on a subsequent purchase, the points operate economically as a discount mechanism rather than an independent instrument of payment. As such, the EU VAT rules on vouchers do not apply. Instead, when customers redeem points, Lyko effectively supplies two items (the regular purchase and the reward) at a combined price that must be split between them.
However, the AG clarified that if loyalty points could be redeemed independently—without requiring another purchase—they would qualify as vouchers. In that case, they would meet the EU VAT Directive’s definition: an instrument exchangeable for goods or services under specified conditions.
AG breaks with Dutch policy and other CJEU rulings
The AG departed from Dutch policy and earlier CJEU precedent in Kuwait Petroleum (1999), which treated loyalty gifts as “free of charge.” Kokott argued that points are not free: part of the original purchase price must be allocated to them. Unlike in Kuwait Petroleum, Lyko’s customers actively participate in the program, so the points are not optional giveaways.
She also addressed how VAT rules distinguish between single-purpose vouchers (SPVs) and multi-purpose vouchers (MPVs). Since the value of Lyko’s points can only be determined at redemption, they would always count as MPVs. This means VAT becomes due only upon redemption. If points remain unused, the full price of the original purchase stays taxable.
Practical Implications – big changes especially in the Netherlands
If the CJEU follows the AG’s opinion, significant consequences may arise for businesses operating loyalty programs, particularly in the Netherlands. Current Dutch policy treats points as free and relies on a “deemed supply” approach when rewards exceed €15 in value. Under the AG’s view, purchase prices would instead need to be reallocated between goods and points, potentially altering the VAT outcome depending on the items involved.
The case highlights how the VAT treatment of loyalty programs depends heavily on program design. Companies should review their schemes now, model possible financial impacts, and prepare for adjustments once the CJEU issues its final ruling.
