Briefing document & Podcast: ECJ C-436/24 (Lyko) VAT on Loyalty Programs

This document provides a briefing on the key themes and ideas presented in the provided sources regarding Case C-436/24, Skatteverket v Lyko Operations AB, concerning the VAT treatment of customer loyalty program points. The case centers on whether points awarded under Lyko’s customer loyalty program qualify as “vouchers” under Article 30a of the EU VAT Directive and, if so, how VAT should be applied.

I. Main Themes and Ideas:

Definition of a Voucher: The central debate revolves around the definition of a “voucher” under Article 30a of the VAT Directive. The Advocate General (AG) Kokott emphasizes the need for a clear and consistent application of this definition.
Voucher vs. Discount: A key distinction is drawn between vouchers and simple discount schemes. The AG argues that Lyko’s loyalty points function more as a discount on future purchases than as a voucher representing a distinct right to goods or services. As stated in the AG’s opinion, “Discount instruments do not oblige anyone to supply upon presentation of the voucher, but only to reduce the price when a customer undertakes to purchase goods.”
Obligation to Supply: A core element of the AG’s analysis is whether the loyalty points create an obligation on the supplier (Lyko) to provide goods or services. She argues that the points can only be used in conjunction with another purchase, and therefore do not create the necessary obligation. As she notes: “In so doing, the points do not create an obligation on the part of the supplier to supply goods, but may be used only in connection with (another) obligation on the part of the customer to make a subsequent purchase.”
Single-Purpose vs. Multi-Purpose Vouchers: The difference between these voucher types significantly impacts the timing of VAT application. SPVs are taxed at each transfer, while MPVs are taxed only upon redemption. Lyko seemingly prefers the treatment of the points as MPVs. The “VAT and Customer Loyalty Programs: Case C-436/24 Study” notes that classifying the points as MPVs gives “a cash flow advantage”
Taxable Amount: The case necessitates a review of Articles 73 and 73a of the VAT Directive, which pertain to the calculation of the taxable amount. Article 73 sets the general rule, while Article 73a provides specific guidance for MPVs.
Treatment of Unredeemed Points: A crucial aspect of the case is the VAT treatment of unredeemed loyalty points. The AG posits that these points, even if considered MPVs, should not be taxed until redeemed.
Practical Implications: The decision in this case will have practical implications for businesses implementing customer loyalty programs within the EU, influencing the design and VAT treatment of such programs.

II. Key Arguments and Facts:

Lyko’s Loyalty Program: Customers earn points based on purchases, redeemable for goods from a “points shop” during a future purchase. Points cannot be redeemed for cash or purchased separately.
Advocate General Kokott’s Stance: The AG believes the Lyko points do not satisfy the definition of a voucher under Article 30a because they do not create a self-standing obligation to supply goods. She views them as a discount mechanism.
- Two Cumulative Conditions for a Voucher (AG Kokott): The goods to be supplied or potential supplier must be apparent.
- There must be an obligation to accept the points as consideration for the supply of goods.
Distinction from Kuwait Petroleum: The AG distinguishes this case from Kuwait Petroleum where vouchers were given as gifts with discretionary acceptance. In the Lyko case, points are earned through purchases, implying consideration.
No Fixed Monetary Value: The “VAT and Customer Loyalty Programs: Case C-436/24 Study” notes that one contention is that the loyalty points have no fixed monetary value.
Swedish Tax Agency’s Argument: The Swedish Tax Agency argues the points “do not constitute vouchers of a certain value that can be transferred, but merely an opportunity for the customer to choose another product after having purchased other products for a certain amount.”

III. Quotes:

Ben Terra on the Voucher Directive: “There are certain things that get better with age. Regretfully, the Voucher Directive, in respect of which it has taken the Member States so long to agree to the content, is not one of them.”
Article 30a (1) Definition of Voucher: ‘”voucher” means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services and 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;’
AG Kokott on Discount Instruments: “Discount instruments do not oblige anyone to supply upon presentation of the voucher, but only to reduce the price when a customer undertakes to purchase goods.”
AG Kokott on the Obligation to Supply: “In so doing, the points do not create an obligation on the part of the supplier to supply goods, but may be used only in connection with (another) obligation on the part of the customer to make a subsequent purchase.”

IV. Advocate General’s Proposed Conclusion:

The AG proposes that the Court rule that Lyko’s loyalty points are not vouchers under Article 30a of the VAT Directive. Instead, they are a discount on future purchases because there is no self-standing obligation to accept them as consideration. Thus, she doesn’t find the second question on determining the taxable amount needs to be answered.

V. Potential Impact:

This case has significant implications for how customer loyalty programs are structured and taxed across the EU. If the Court follows the AG’s opinion, it would solidify the distinction between vouchers and discounts in the context of VAT, potentially leading businesses to re-evaluate the design of their loyalty programs to avoid classification as vouchers.

This briefing document provides a detailed overview of the core issues and arguments in Case C-436/24, setting the stage for understanding the Court’s eventual ruling and its impact on VAT and customer loyalty programs.