VAT, vouchers and loyalty points

The CJEU has held that a scheme providing loyalty points on purchases which could be redeemed to acquire further items from the supplier upon making a future purchase did not amount to a voucher for VAT purposes: Skatteverket v Lyko Operations AB (Case C 436/24). As such, those points could not be regarded as a multi-use voucher and the taxpayer's argument that no VAT was payable on consideration attributable to unused points failed.

Unlike the AG, the CJEU limited itself to the decision that the points failed to qualify as a voucher. As such, the AG's wider comments on whether the points arrangement in this case would have succeeded in negating the obligation to account for VAT on the consideration attributable to the points (if they had amounted to a multi-purpose voucher) were not commented on by the CJEU.

Background

Lyko sells hair care and beauty products in physical shops and online. It developed a customer loyalty programme under which Lyko's customers (all private individuals) receive points for each ordinary purchase, which they could then redeem for goods in the points shop. Points could be redeemed only in connection with a new ordinary purchase. The product range in the points shop consisted of products from the company's ordinary range. The products were mainly of low value, but could be subject to different VAT rates. Any points acquired were lost if not used within two years. Lyko sought a tax ruling confirming that the points were multi-use vouchers for VAT purposes.

It appears that the reason that Lyko sought this confirmation was so that any unredeemed points would fall outside the scope of VAT. Payments for a multi-purpose voucher (unlike single-purpose vouchers) are taxable only when the voucher is redeemed. If it is never redeemed, VAT is not due on that amount. All companies therefore have an incentive to avoid single-use vouchers. That can be achieved relatively easily by issuing vouchers that can be used for products with different VAT rates. That was the situation in this case. As the AG noted: "If the points are treated as a multi-purpose voucher, the remuneration for those unredeemed points should, in principle, not be taxed. On the other hand, if the points are to be regarded only as a kind of discount scheme, then they have the effect of reducing tax only if and when they are redeemed. In that case, VAT would be payable in full on the first acquisition of the goods and it is only on redemption of the points that goods would be purchased at reduced prices, which would then also reduce the tax."

In this case, Lyko contended that part of the consideration paid for goods which earned points was attributable to those points (they were not provided free) and to the extent that those points were not ultimately used, then a proportion of that consideration fell out of account for VAT purposes.

CJEU decision

The CJEU has held that the circumstances of these arrangements do not give rise to a "voucher". The CJEU noted that for the purposes of the Article 30a of the Principal VAT Directive, a 'voucher' is an instrument where (a) 'there is an obligation to accept it as consideration or part consideration for a supply of goods or services' and (b) 'where the goods or services to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument'. Therefore, the definition does not include all instruments commonly referred to as vouchers, but only those which satisfy the two conditions set out in Article 30a.

In this case, the points awarded to Lyko customers were to be used in Lyko's points shop only in combination with a new purchase of products. In those circumstances, the CJEU agreed with the AG that the points do not create any obligation on the part of the supplier to accept them as consideration for a supply of goods. "Those points only enable holders who decide to make a new purchase from that supplier to obtain, as a bonus, additional goods of low value." Just as the Directive made clear that an instrument which provides a right to a discount upon further purchase of goods or services does not fall within the definition of a voucher for these purposes, neither did points in this case.

That was sufficient for the CJEU to determine that the points in this case did not amount to a multi-purpose voucher and, unlike the AG, it did not go onto to consider other issues referred.

Treatment of unused points

Unlike the CJEU, the AG did go onto to consider the question whether the unused points in this case would have fallen out of account if they had amounted to a multi-use voucher. The AG considered that only the redemption of points would constitute a supply (of the reward) for consideration (in the form of the voucher). At the time of that redemption, it would be possible to indicate and determine the value of the voucher on the basis of the chosen reward. The supply of the reward would have to be taxed at the time of redemption. Corresponding to that, that redemption would then (for the first time) reduce the taxable amount of the purchase which included the purchase of the points.

The AG explained that "under Articles 30a and 30b of the VAT Directive, a multi-purpose voucher which does not represent a specified value, but only a specifiable value, can have consequences for VAT purposes only when that specifiable value is specified. If that occurs only at the time of redemption, that voucher has, until that date, no effect, including on the taxable amount of the first purchase. Consequently, if the points are not redeemed, the taxable amount of the first purchase remains unchanged, both from the point of view of the seller - who has received a certain amount for the goods - and from the point of view of the customer - who has spent a certain amount on the goods received - and must be taxed in full. A breakdown of that taxable amount (into a taxed part for goods and an untaxed part for the voucher) is not possible in the event of the issue of a voucher with a merely specifiable value (unlike the issue of a multi-purpose voucher of a specified value), since the specifiable value of a voucher cannot be established unless it is redeemed."

Comment

The decision limits the ability of certain instruments to qualify as vouchers for the purposes of the VAT voucher rules, where they do not provide an automatic right to be exchanged for goods or services.

The case also highlights some of the many complexities of the voucher rules. On top of those, recent cases (such as McDonald Resorts Ltd v HMRC (Case C-270/09), Findmypast Ltd v HMRC [2017] STC 2335 and Go City Ltd v HMRC [2024] UKFTT 745) have also recognised the existence of non-taxable credits or points where, since the purchase of those rights was not an aim in itself, but rather the purpose of the rights was to allow participants in the scheme to obtain various possible benefits, the service was not supplied until the points were converted into specific transactions. These cases also result in consideration attributable to unused points falling outside the scope of VAT. However, one can perhaps recognise some of the discomfort that the AG's opinion sought to address in this case in the scenario where amounts are clearly paid as consideration but ultimately fall outside the scope of the VAT net where the acquired rights are not utilised.