VAT treatment of loyalty schemes: key takeaways from the Advocate General’s opinion in the Lyko case

In this Client Alert, Senior Associate János Pásztor and Associates Bence Kálmán and Bálint Apáthy provide an overview of the Lyko case before the CJEU and explain Advocate General Kokott’s opinion on the VAT treatment of loyalty schemes. They also assess the potential implications for businesses, including VAT compliance and the structuring of loyalty programmes.

On 11 September 2025, Advocate General Kokott delivered her opinion in case C-436/24 pending before the Court of Justice of the European Union (‘CJEU’). Her analysis introduced important considerations regarding the VAT treatment of loyalty schemes by clarifying the conditions under which they can be considered vouchers and what bearing such qualification may have on the tax base of transactions.

Background of the case

Lyko Operations AB, a retailer of beauty products both online and in-store, considered launching a loyalty programme and sought a VAT ruling from the Swedish tax authorities. Under the proposed scheme, customers would earn non-transferable points with each purchase, redeemable for low-value goods from a designated “points shop” only in conjunction with future purchases.

Lyko argued that the points should be treated as vouchers, creating a VAT-relevant obligation to supply goods upon redemption. However, the Swedish tax authorities disagreed, stating that the points merely give customers the right to a ‘more favourable’ additional purchase and do not meet the criteria for vouchers under VAT law.

Preliminary questions submitted

The questions submitted to the CJEU seek clarification as to when an instrument issued in a loyalty scheme may be considered a voucher and how the taxable amount should be established if such an instrument qualifies as a voucher. 

Advocate General Kokott’s opinion

In assessing whether Lyko’s loyalty points qualify as vouchers under Article 30a of the EU VAT Directive, Advocate General Kokott examined two cumulative criteria: (1) the goods or supplier must be identifiable and (2) the supplier must be obliged to accept the instrument as consideration for a supply.

While the first condition was deemed satisfied – given that the programme’s terms clearly define the goods and redemption process – ­the second was not. The Advocate General emphasised that Lyko is not required to provide goods solely upon presentation of points; redemption is only possible in conjunction with a subsequent purchase. Therefore, the points do not create an independent obligation to supply goods and cannot be considered vouchers under EU VAT law.

The Advocate General concluded that Lyko’s points operate as a discount mechanism, reducing the taxable amount on subsequent purchases, rather than constituting vouchers. However, she rejected the need to assign a fixed value to points at issuance, emphasising that treatment of an instrument as a voucher depends on whether the instrument concerned (e.g. points) grants an independent right to a specifiable reward.

Had Lyko granted an independent right to claim rewards, the points could have qualified as multi-purpose vouchers (MPVs), which are not subject to VAT until redemption. Since the points do not constitute consideration for a supply but merely give rise to the possibility of a discount, the initial purchase remains fully taxable and unredeemed points have no impact on its VAT treatment. Lower taxation may only occur in respect of the subsequent purchase where the discount is used (i.e. points are redeemed).

With regard to an MPV, which does not represent a specified value but only a specifiable value, the Advocate General took the view that the tax base of the initial transaction remains unchanged until the value of the voucher is specified (e.g. upon the redemption of the MPV).

Implications for VAT compliance and loyalty scheme structuring

The CJEU has yet to render its judgment in the case of Lyko. However, businesses operating loyalty programmes should prepare for this judgment, as they may be required to amend their VAT treatment of such schemes.