CJEU issues favourable ruling on the VAT treatment of loyalty programmes

On 5 March 2026, the Court of Justice of the European Union (CJEU) issued its decision in the Lyko Operations AB case (C-436/24) concerning the VAT treatment of loyalty programmes. The CJEU ruled that loyalty points issued within the framework of a loyalty programme—where the customer is required to combine the redemption of points with a purchase to receive a benefit—do not constitute vouchers and hence do not trigger VAT upon issuance or redemption.

Background and facts of the case

Lyko Operations AB (hereafter "Lyko") sells hair care and beauty products in physical stores and online. To clarify the VAT treatment of a proposed customer loyalty programme, Lyko applied for a tax ruling from the Swedish tax authorities.

Under the programme, customers (all private individuals) may join at no cost and earn points on each purchase, redeemable for goods in a designated ‘points shop’ during a subsequent purchase. The points shop offers primarily low-value items from Lyko's standard range. Redemption values are structured so that customers receive goods worth approximately 2% -10% of their original purchase value. Points are personal, non-transferable, and expire after two years and they cannot be combined with money to acquire goods in the points shop. Once a customer has accumulated sufficient points, Lyko is obliged to deliver the relevant goods upon redemption. Lyko took the view that the points qualify as vouchers.

The Swedish tax authorities disagreed, contending that the points do not constitute transferable vouchers of a specified value, but merely an entitlement to select an additional product following a purchase of a certain amount.

Questions referred to the CJEU

The Supreme Administrative Court of Sweden referred two questions to the CJEU: first, whether the points qualify as vouchers; and second, if so, how the taxable amount of such vouchers is to be determined.

Advocate-General (hereafter “AG”) Kokott concluded that the loyalty points in the case at hand do not qualify as a voucher, on the basis that the points do not create an independent obligation for Lyko to supply goods as they can only be redeemed in the context of a further purchase by the customer. On that basis, the AG took the view that the only taxable amount to consider upon redemption is the price paid by the customer during that second purchase. For a detailed analysis of the opinion of AG Kokott, we refer to our earlier alert ‘Loyalty programmes and VAT: AG’s opinion in Lyko case brings new perspectives’.

CJEU considerations

The Court begins the judgment by reiterating the two cumulative conditions for an instrument to qualify as a voucher based on article 30a of the EU VAT directive (i) either the goods to be supplied or the potential supplier must be identifiable from the voucher or its terms and conditions; and (ii) there must be an obligation to accept the voucher as consideration for the supply of goods.

In a relatively brief judgment, the CJEU, following the AG’s opinion and particularly considering the second voucher condition mentioned above, ruled that the loyalty points in this case do not constitute vouchers. The key consideration is that the points may only be used in Lyko’s points shop in connection with a subsequent purchase; therefore, there is no obligation on the supplier to accept those points as consideration for the supply of goods. Accordingly, the court ruled that the points do not (independently) create an obligation for the supplier to accept them as payment. Instead, these points simply enable holders who choose to make a new purchase from the supplier to receive, as a bonus, additional goods of low value.

The Court did not address the second question concerning the determination of the taxable amount, as this was rendered unnecessary by its answer to the first question.

Unlike the AG, the CJEU did not take an explicit position on loyalty points redeemable without an obligation to purchase, nor did the Court explicitly comment on the implications or correlation of the current case with the Kuwait Petroleum (C-48/97) case.

Significance of the decision

This judgment was highly welcomed as it is the first time since 2010 (since the LMUK and Baxi cases, C-53/09 and C-55/09) that the Court explicitly had to address the VAT treatment of a loyalty programme. The judgment provides important clarification and confirmation that, where the customer is obliged to make a purchase upon redeeming loyalty points, those points do not constitute vouchers that are taxable upon issuance or redemption.

Consequently, it clearly follows from this judgment that a discount granted upon redemption of loyalty points effectively reduces the taxable amount of the purchase. A similar reasoning appears to apply in the case of free volume (with a subsequent purchase) upon redemption of loyalty points, although it is not explicitly clarified whether the fact that the goods involved were of low value in the case at hand has any impact. While not explicitly stated, by referring to paragraphs 31–33 of the AG’s opinion, the Court appears to agree though that, in cases where additional value is provided upon redemption, this should similarly be treated as a discount (equal to the value of the free supply) on the total value of the supply—that is, the purchase with which the points are redeemed plus the free item.

The latter represents an important nuance for companies in practice, particularly regarding the practical need to account for VAT on a deemed supply in cases where free items are provided as part of a loyalty programme.

Companies are encouraged to review their current loyalty programme and reassess the potential VAT implications, carefully considering the specific context and set up of the loyalty programme, as the VAT consequences—and the impact of this judgment—may vary accordingly.