Loyalty points for a free product on a subsequent purchase are not a VAT voucher
Loyalty points for a free product on a subsequent purchase are not a VAT voucher
Loyalty programmes offer rewards to customers for repeat purchases. On 5 March 2026, the Court of Justice of the European Union further clarified the VAT treatment of loyalty points that customers receive when participating in a loyalty programme. The judgment confirms that loyalty points granted to participants, which can only be redeemed on a subsequent purchase for an additional product, do not qualify as a voucher for VAT purposes.
The Court of Justice ultimately did not address the question of how the points should be treated for VAT purposes, since the points do not qualify as vouchers. In our view, the granting of the points has no impact on the VAT treatment at the time of issuance. When a customer redeems the points during a later purchase to obtain an additional product free of charge, VAT is - again in our view - due on the value of the free product (the socalled “deemed supply”), unless the value of the product does not exceed €15 (the threshold for gifts of small value) or the product can be regarded as a sample. Earlier case law also shows that a product provided free of charge may, in certain circumstances, be considered to form part of the supply of another product. If that is the case, no deemed supply arises.
We recommend that businesses offering savings schemes or working with vouchers review their current VAT treatment in light of this judgment and assess whether it has implications for their own loyalty programmes.
VAT framework for vouchers
For VAT purposes, an instrument is regarded as a voucher if the following conditions are met:- There is an obligation to accept the points (or another instrument) as (partial) consideration for a supply of goods or services.
- The goods or services to be supplied, or the identity of the potential suppliers, are indicated on the voucher itself or in the accompanying documentation, such as the terms and conditions of use.
Facts of the case
Lyko is a Swedish company that sells haircare and beauty products and intended to establish a loyalty programme for its customers. Participants in the loyalty programme would receive points with each ordinary purchase, which they can subsequently redeem - only with a later purchase - for products available in the company’s ‘points shop’. The products in the points shop are mainly of low value, subject to different VAT rates and cannot be obtained through a combination of points and monetary payment. To obtain certainty regarding the VAT treatment of the loyalty programme, the Swedish company asked the Swedish tax authority whether the points granted under the programme qualify as a voucher (MPV), which was subsequently referred to the Court of Justice.Judgment of the Court
In its judgment, the Court of Justice ruled that loyalty points granted to participants in a loyalty programme, which can subsequently be redeemed only with a later purchase for an additional product, do not qualify as a voucher for VAT purposes. The Court’s key consideration is that these points merely entitle the customer to receive an additional product on the condition that the customer decides to make another purchase from the same supplier. In other words, the points can only be used in combination with a later purchase. This means that, at the moment the points are granted, they do not create an obligation for the supplier to accept them as consideration for a supply of goods. Consequently, the first condition for qualifying an instrument as a voucher is not satisfied.What does this mean in practice?
For practical purposes, this judgment provides clarification on the VAT treatment of loyalty programmes in which loyalty points can only be redeemed in conjunction with a compulsory subsequent purchase.The Court of Justice ultimately did not address the question of how the points should be treated for VAT purposes, since the points do not qualify as vouchers. In our view, the granting of the points has no impact on the VAT treatment at the time of issuance. When a customer redeems the points during a later purchase to obtain an additional product free of charge, VAT is - again in our view - due on the value of the free product (the socalled “deemed supply”), unless the value of the product does not exceed €15 (the threshold for gifts of small value) or the product can be regarded as a sample. Earlier case law also shows that a product provided free of charge may, in certain circumstances, be considered to form part of the supply of another product. If that is the case, no deemed supply arises.
We recommend that businesses offering savings schemes or working with vouchers review their current VAT treatment in light of this judgment and assess whether it has implications for their own loyalty programmes.
