Loyalty programmes and VAT: AG’s opinion in Lyko case brings new perspectives

On 11 September 2025, Advocate-General (AG) Kokott of the Court of Justice of the European Union (CJEU) issued her opinion in the Lyko Operations AB case (C-436/24).

The opinion brings several new perspectives to the VAT treatment of loyalty programmes. In particular, the AG considers that in this case, loyalty points qualify as discounts rather than vouchers, since a future purchase is necessary to redeem the points and receive the additional benefit (i.e., the extra goods). This also implies that, contrary to the usual interpretation of prior CJEU case law, the provision of a gift within a programme such as Lyko’s may no longer trigger a deemed supply for VAT purposes.

Facts of the case

Lyko Operations AB (hereafter “Lyko”) sells hair care and beauty products both in physical stores and online. Lyko sought to develop a customer loyalty programme and applied for a tax ruling from the Swedish tax authorities to clarify how the programme should be treated for VAT purposes.

Lyko’s customers (all private individuals) may join the loyalty programme at no extra cost, and receive points for each purchase, which they can then redeem for goods in the designated “points shop” during a subsequent purchase. The product range in the points shop consists primarily of low-value items from Lyko’s standard range, which may be subject to different VAT rates.

Each product in the points shop is priced in points, with the pricing structured so that customers receive goods equivalent to between approximately 2% and 10% of their initial purchase value. Each point redeemed can be linked to the total purchases made in the month the point was earned, with the oldest points always used first. Points are personal and nontransferable; they cannot be redeemed for cash or purchased with money. Additionally, goods in the points shop cannot be obtained by combining points and money. Points expire if not used within two years.The points issued under the loyalty programme create an obligation for Lyko to deliver goods when a customer has accumulated enough points and wishes to redeem them during their next purchase. Lyko considered that the points qualify as vouchers.

However, the Swedish tax authorities argued that Lyko is not issuing vouchers, as the points do not constitute vouchers of a certain value that can be transferred, but simply an opportunity for the customer to choose another product after having first purchased other products for a certain amount.

Questions referred to the CJEU

The Supreme Administrative Court of Sweden referred two questions to the CJEU. The first sought confirmation on whether the points issued in this case qualify as vouchers. The second aimed to clarify the taxable amount of such vouchers, should the first question be answered in the affirmative.

Opinion of the AG

Considering the definition of a voucher based on the EU VAT directive

Article 30a of the EU VAT directive sets out two cumulative conditions for a voucher to qualify as such: (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.AG Kokott considered the first condition to be met, as the detailed terms and conditions for using the points are communicated to customers who participate in the programme.

However, the AG found that the second condition is not met, with the key factor being that Lyko is not obliged to provide a reward solely upon presentation of points. Instead, the loyalty programme is designed so that customers may use points to obtain additional goods only in the context of a subsequent purchase. Thus, the points do not create an obligation on the supplier to supply goods independently, and may only be used in conjunction with the customer’s obligation to make a further purchase. It is only within the context of this subsequent purchase that the points may be exchanged for a reward. According to the AG, an obligation on the supplier’s part is necessary for the instrument to qualify as a voucher.

Therefore, in this case, the points do not impose any economic obligation on Lyko to supply a reward but simply grant the customer the right to a “more favourable” additional purchase. The AG thereby implied that upon redemption of points (i.e., the second purchase through which the reward is claimed), the price paid by the customer is the only taxable amount to consider.

This conclusion is supported by the AG’s response to the second question regarding the taxable amount on redemption. As such the AG stated that the issuance of points redeemable only in conjunction with another purchase does not constitute a voucher under article 30a of the EU VAT directive but should instead be regarded as a simple discount (presumably on the total supply).

The position would differ if the points could be redeemed for a reward independently of any other purchase. In that scenario, the conditions to qualify as a voucher would be met, according to the AG.

Is a specified value on issue required to qualify as a voucher?

The AG also noted that the condition applied by some jurisdictions that points should already have a specified issue value (i.e., be “as such” paid for) to qualify as a voucher would introduce an additional requirement beyond those set out in the EU VAT directive (see above). What appears relevant from the AG’s opinion is that “the reward is supplied independently” (i.e., separately from a subsequent purchase).

The AG stated that, for example, a so-called “stamp card”—whereby after 10 purchases (indicated by stamps), the 11th purchase is free—may now constitute a voucher for the supply of the 11th item. The decisive factor is whether the additional item must be supplied independently or only in combination with a purchase. In the latter case, the card would be considered merely a discount on the 11th purchase.

Note: According to the AG, the CJEU’s decision in the Kuwait Petroleum case (judgment C-48/97 of 27 April 1999)—in which the court ruled that goods supplied as a reward for previous purchases triggers the need to report a deemed supply—is not undermined in light of the new opinion. The AG noted that in the earlier judgment, the court placed decisive importance on the fact that vouchers were classified as gifts and that their acceptance by customers was discretionary. This differs from the present case, where points are only awarded to participants in a customer loyalty programme who intend to purchase items to earn those points. In such cases, points are credited based on the price of the purchase and are correctly not classified as gifts.

Consequently, if Lyko had granted an independent right to a reward, the points in this case would have to be regarded as vouchers according to the AG. This means that if the reward is not yet specified (and it is therefore not possible, for example, to determine the correct VAT rate), the voucher would be a multi-purpose voucher (MPV), the issue of which has no immediate VAT consequences. Only the redemption of points would constitute a supply (i.e., of the reward) for consideration in the form of the voucher. At the time of redemption, it would be possible to determine the value of the voucher based on the chosen reward. The supply of the reward would then be subject to VAT at the time of redemption. Correspondingly, that redemption would (for the first time) reduce the taxable amount of the purchase that included the acquisition of the points.

If points are not redeemed, the taxable amount of the initial purchase remains unchanged, both from the seller’s perspective—who has received payment for the goods—and from the customer’s perspective—who has paid for the goods received—and must be taxed in full. It is not possible to break down that taxable amount into a taxed portion for goods and an untaxed portion for the voucher for vouchers with a value that can only be specified upon redemption (unlike the issue of a multi-purpose voucher with a specified value), since the value of such a voucher cannot be established until it is redeemed.

Relevance of the opinion

This opinion addresses key uncertainties that commonly arise in practice regarding loyalty programmes. The AG stated that a loyalty point, even without a specified issue value, can qualify as a voucher, but not if the customer is obliged to make a further purchase to receive the reward. In such cases there is no voucher, and the second purchase constitutes a discounted supply of the purchased item and the reward. This interpretation also nuances the current scope of existing CJEU case law, particularly Kuwait Petroleum, where gifts given as rewards for previous supplies were held to trigger a deemed supply, thereby supporting VAT neutrality for companies operating such schemes.

The opinion also raises several new questions and concerns related to VAT neutrality, especially in cases where a voucher does exist within a loyalty programme framework. These include the need to adjust the VAT taxable amount of the initial supply at the time of the VAT-taxable redemption of points if the voucher qualifies as an MPV, the fact that unredeemed MPVs would not allow for such an adjustment, and the unresolved issue of how to treat vouchers that could qualify as single-purpose vouchers in relation to the taxable amount of the initial supply.

Next steps

We look forward to the final judgment of the CJEU in this case, the date of which is not yet known; however, in the meantime it is strongly recommended that companies review their current loyalty programme setup and assess the associated VAT consequences to prepare for the forthcoming ruling.