Points, Vouchers, or Discounts? The CJEU’s Taxonomical Approach to Loyalty Programs Under VAT Law
Advocate General Juliane Kokott’s Opinion of September 11, 2025, in Case C-436/24 Skatteverket v. Lyko Operations AB represents a watershed moment in the European Union’s approach to the VAT treatment of customer loyalty programs. The Opinion, which addresses the fundamental question of when loyalty points constitute vouchers within the meaning of the VAT Directive, promises to reshape how retailers across the European single market structure their customer retention strategies. More significantly, it demonstrates the European Court of Justice’s increasingly sophisticated approach to distinguishing legal form from economic substance in the realm of indirect taxation.
The Doctrinal Framework and Its Discontents
The regulatory landscape governing vouchers underwent substantial revision with the adoption of Council Directive (EU) 2016/1065, which amended Directive 2006/112/EC by introducing Articles 30a and 30b. This legislative intervention sought to address what the European legislature characterized as insufficiently clear and comprehensive rules that were producing “undesirable effects for the proper functioning of the internal market”. The new provisions established a binary classification system distinguishing between single-purpose vouchers (SPVs) and multi-purpose vouchers (MPVs), with correspondingly different VAT treatment regimes.
Article 30a defines a voucher as “an instrument where there is an obligation to accept it as consideration or part consideration for the supply of goods or services and where the goods or services to be supplied or the identity of potential suppliers are either indicated on the instrument itself or in related documentation”. The provision further subdivides vouchers into single-purpose instruments, where both the place of supply and applicable VAT are known at the time of issue, and multi-purpose vouchers, which encompass all other qualifying instruments.
The accompanying tax treatment rules in Article 30b create a temporal distinction in the incidence of taxation. For single-purpose vouchers, any transfer by a taxable person acting in their own name constitutes a supply of the underlying goods or services, rendering the subsequent redemption non-taxable. Conversely, multi-purpose vouchers remain VAT-neutral until redemption, at which point the actual supply of goods or services becomes subject to taxation under Article 2 of the Directive.
The Lyko Operations Paradigm
The factual matrix presented in Lyko Operations epitomizes the modern loyalty program structure that has proliferated across retail sectors. Lyko Operations AB, a Swedish cosmetics retailer, sought to implement a customer loyalty scheme whereby purchasers would accumulate points proportionate to their transaction values. These points could subsequently be redeemed – but only in conjunction with future purchases – for products from a designated “rewards catalog”. The accumulated points possessed no monetary value outside this redemption mechanism, could not be purchased independently, and expired after a two-year period of non-use.
The Swedish Tax Board initially determined that such points did not constitute vouchers within the contemplation of Article 30a, reasoning that vouchers function as coupons evidencing prepayment for future deliveries, whereas loyalty points lack any specific monetary denomination. This interpretation was subsequently challenged by both the Swedish tax authority (Skatteverket) and Lyko Operations, with the former supporting the Board’s conclusion while the latter contended that the points satisfied all definitional requirements under Article 30a.
The Advocate General’s Analytical Framework
Advocate General Kokott’s Opinion demonstrates remarkable analytical sophistication in parsing the constituent elements of the voucher definition. Her analysis proceeds along two primary axes: first, examining whether the Lyko points satisfy the express requirements of Article 30a, and second, considering whether additional implied requirements – particularly regarding predetermined monetary value – should be read into the statutory framework.
The Independence Requirement
The Opinion’s most significant contribution lies in its articulation of what might be termed the “independence requirement” for voucher classification. Advocate General Kokott argues that true vouchers must create an independent obligation to accept the instrument as consideration for a supply. In her analysis, the Lyko points fail this test because they cannot function as standalone consideration but rather operate exclusively in conjunction with additional purchases.
This distinction between independent vouchers and dependent discount instruments represents a fundamental taxonomical innovation. As the Advocate General explains, vouchers “encompass an independent obligation to accept them as consideration for supply”, whereas discount instruments merely “entitle the holder to a price reduction when the customer commits to purchasing goods”. The former creates autonomous payment obligations, while the latter remains parasitic upon separate transactions.
The economic implications of this classification prove substantial. Independent vouchers effectively constitute advance payments, creating immediate VAT consequences upon transfer (for single-purpose vouchers) or deferring taxation until redemption (for multi-purpose vouchers). Dependent discount systems, by contrast, affect only the tax base of the underlying transactions when actually utilized.
The Predetermined Value Controversy
Several intervening parties, including the European Commission and Belgium, argued that vouchers inherently require predetermined monetary values, functioning essentially as prepaid instruments. This position would exclude loyalty points lacking specific monetary denominations from the voucher regime entirely.
Advocate General Kokott persuasively rejects this limitation as unduly restrictive. Her analysis emphasizes that Article 30a contains no express requirement for predetermined monetary values, mandating only that the instrument create acceptance obligations and specify either the goods/services or potential suppliers. Moreover, she argues that excessively narrow interpretation would frustrate the Directive’s remedial purpose by excluding innovative commercial instruments from regulatory coverage.
The Opinion’s treatment of this issue reflects broader tensions in EU VAT law between formalistic definitional approaches and substance-oriented analyses. By focusing on functional rather than formal characteristics, Advocate General Kokott advances a more flexible interpretive methodology that can accommodate commercial innovation while maintaining regulatory coherence.
Economic Substance and Legal Classification
Perhaps the Opinion’s most theoretically sophisticated contribution concerns its treatment of the relationship between economic substance and legal classification. Advocate General Kokott explicitly acknowledges that loyalty points possess economic value both at acquisition (linked to purchase prices) and at redemption (determined by selected rewards). She thus rejects arguments characterizing such points as gratuitous additions to purchases.
This analysis rests upon what the Opinion characterizes as a presumption of consideration in commercial relationships. As Advocate General Kokott observes, outside close personal relationships, businesses do not provide gratuitous benefits to third parties. Every apparent “gift” has either been previously paid for or will be subsequently recovered through pricing mechanisms. This economic reality undermines arguments that loyalty points lack consideration merely because they accompany purchases at standard prices.
The Opinion’s economic analysis proves particularly compelling in its treatment of transaction-dependent points. Such systems inherently involve customers paying for both primary goods and accumulated points through their purchase decisions. The economic value becomes determinate at redemption, when customers select specific rewards, thereby crystallizing both the consideration provided and the corresponding supply obligation.
Broader Doctrinal Implications
The Lyko Operations Opinion contributes to several evolving doctrines within EU VAT jurisprudence. Most immediately, it provides definitive guidance on the scope of the voucher regime introduced in 2016. By establishing clear criteria for distinguishing vouchers from discount mechanisms, the Opinion should enhance legal certainty for businesses designing customer retention programs.
More broadly, the Opinion reflects the Court‘s increasing willingness to prioritize economic substance over formal legal characterization in VAT matters. This methodological approach, while not unprecedented, represents a significant departure from more formalistic traditions in indirect taxation. The implications extend well beyond loyalty programs to encompass any commercial arrangements where legal form might diverge from economic reality.
The Opinion also demonstrates sophisticated treatment of temporal issues in VAT law. By clarifying when loyalty points create immediate versus deferred tax consequences, Advocate General Kokott provides valuable guidance on cash flow implications for businesses. The distinction between voucher systems (which may defer taxation) and discount systems (which affect only final transaction values) carries substantial practical significance for corporate tax planning.
Practical Ramifications for Commercial Practice
The Opinion’s immediate practical impact will likely manifest in the restructuring of existing loyalty programs throughout the European Union. Businesses seeking voucher treatment – with its potential for deferred taxation – must ensure that accumulated points can be redeemed independently of additional purchases. Conversely, companies preferring discount classification should maintain structures requiring supplementary transactions for point utilization.
These design considerations carry significant financial implications beyond mere VAT treatment. Voucher systems may require provisions for unredeemed value, as unused vouchers could theoretically escape taxation entirely. Discount systems, while potentially less favorable from a cash flow perspective, offer greater certainty regarding ultimate tax obligations.
The Opinion also suggests increased regulatory scrutiny of loyalty program mechanics. Tax authorities will likely examine more closely whether point redemption systems genuinely operate independently or merely provide discounts on additional purchases. This scrutiny may drive convergence toward more standardized program structures across different retail sectors.
Theoretical Foundations and Future Trajectories
From a theoretical perspective, the Lyko Operations Opinion contributes to ongoing scholarly debates regarding the proper role of economic analysis in tax law interpretation. Advocate General Kokott’s approach, which explicitly considers commercial substance alongside legal form, reflects broader trends toward functional analysis in European tax jurisprudence.
This methodological evolution raises important questions about the balance between legal certainty and adaptive interpretation. While substance-oriented approaches may better capture economic reality, they potentially increase uncertainty by requiring case-specific factual determinations. The tension between these competing values will likely influence the Court’s ultimate disposition of the case and its broader implications for VAT doctrine.
The Opinion’s treatment of temporal issues also contributes to evolving understandings of when VAT obligations crystallize. By distinguishing between instruments creating immediate obligations (vouchers) and those affecting only future transactions (discounts), the analysis provides valuable insights into the temporal dimension of tax incidence. This framework may prove influential in analyzing other complex commercial arrangements involving deferred or contingent payments.
Anticipating the Court’s Response
Given the Opinion’s analytical rigor and doctrinal coherence, the Court will likely adopt Advocate General Kokott’s fundamental approach, though potentially with some refinements. The independence requirement appears particularly well-grounded in both statutory language and policy considerations, making its adoption highly probable.
The Court may, however, provide additional guidance regarding the boundaries of the discount/voucher distinction. Businesses will undoubtedly attempt to structure programs that technically permit independent redemption while practically requiring additional purchases. The Court’s treatment of such arrangements will significantly influence the Opinion’s ultimate practical impact.
More broadly, the Court’s disposition of Lyko Operations will signal its approach to commercial innovation in VAT law. A formalistic ruling emphasizing strict compliance with traditional voucher characteristics might discourage innovative customer retention programs. Conversely, a substance-oriented approach following the Advocate General’s analysis would provide greater flexibility for commercial creativity while maintaining appropriate tax policy constraints.
Synthesizing Doctrinal Evolution
The Lyko Operations Opinion ultimately represents a sophisticated attempt to reconcile competing policy objectives within the EU VAT system. By establishing clear criteria for distinguishing vouchers from discount mechanisms, it enhances legal certainty while preserving flexibility for commercial innovation. The independence requirement provides a workable standard that can accommodate diverse business models while maintaining doctrinal coherence.
Perhaps most significantly, the Opinion demonstrates how careful economic analysis can inform legal classification without abandoning principled interpretation. Advocate General Kokott’s approach neither mechanically applies formal definitions nor abandons legal constraints in favor of purely functional analysis. Instead, it synthesizes textual interpretation, policy considerations, and economic reality into a coherent analytical framework.
This synthetic approach may prove influential beyond the immediate context of loyalty programs. As commercial relationships become increasingly complex and innovative, courts will face growing pressure to develop interpretive methodologies that can accommodate economic reality while maintaining legal coherence. The Lyko Operations Opinion provides a valuable model for such methodological development.
The ultimate resolution of Case C-436/24 will thus carry implications extending far beyond the Swedish cosmetics industry. It will contribute to the ongoing evolution of EU VAT jurisprudence, potentially influencing how courts approach the intersection of commercial innovation and tax law across diverse contexts. For businesses, tax practitioners, and scholars alike, the case represents a crucial development in the continuing effort to construct tax systems capable of addressing modern commercial reality while maintaining principled legal foundations.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
