Customer Loyalty Programme Is Not a Voucher
Facts of the Case
The case concerned a Swedish retailer of haircare and beauty products that intended to introduce a customer loyalty programme. Customers could join the programme free of charge and earn loyalty points with each purchase. These points could subsequently be redeemed for selected products that changed regularly over time.
The products available through the loyalty programme generally had a value of no more than EUR 50 and were subject to different VAT rates. Each product offered in the programme’s “points shop” was assigned a points value corresponding to approximately 2% to 10% of the value of previous purchases. The points could neither be exchanged for cash nor purchased separately. They were issued on a personal basis, were non-transferable, and could only be redeemed for rewards within a period of two years.
The European Court of Justice (ECJ) concluded that the loyalty points did not constitute vouchers for VAT purposes.
Requirements for a Voucher
Under the EU VAT Directive, an instrument qualifies as a voucher only if:
- there is an obligation to accept it as consideration, or part of the consideration, for a supply of goods or services; and
- the goods or services to be supplied, or the identity of the potential supplier, are specified either on the instrument itself or in the related documentation.
According to the ECJ, the proposed loyalty programme did not satisfy the first of these requirements. The programme did not create an obligation for the retailer to accept the points as consideration for a supply of goods. Rather, the points merely entitled their holder to receive additional low-value products as a reward if the customer chose to make a further purchase from the retailer.
Since one of the essential conditions for voucher classification was not met, the loyalty programme could not be regarded as either a single-purpose voucher or a multi-purpose voucher.
Practical Considerations
Businesses considering the introduction of a loyalty points programme should carefully assess the tax implications at an early stage. In particular, such programmes may raise complex VAT classification issues. A thorough tax review during the design phase can help mitigate risks and ensure that the programme is structured in a tax-efficient and compliant manner.
Key Takeaway
The ECJ has clarified that loyalty points awarded under a customer reward scheme do not automatically qualify as vouchers for VAT purposes. Where loyalty points merely grant customers access to promotional rewards and are not accepted as consideration for goods or services, the special VAT rules applicable to vouchers do not apply.