7.10.2 Loyalty or customer data as consideration for supplies from an EU VAT perspective?

Promotional activities often have specific rules.1 For example, only customers that actually purchase specific goods or services, often for certain amounts, will receive ‘loyalty points’ (often related to the amount of money spent). Also, customers may have to provide suppliers with detailed personal information, or data about their use of websites, search history or other customer data, which can be used by businesses for specific marketing purposes, sometimes targeted on a personal level. This information (customer data) has a certain value, which can be considered consideration for the supply of goods or services.

However, under the EU VAT rules (as laid down in case law), this reciprocal performance has to be based on a legal agreement between the parties involved. In my opinion, actively entering/participating in a loyalty scheme by acknowledging that certain rules apply, e.g. with regard to the amount and/or the nature of the purchases that a customer has to make in order to be entitled to receive a ‘free’ gift or a discount on the next purchase, constitutes a legal agreement. Whether or not the premium/loyalty goods and/or services qualify as ‘free’ (i.e. not for consideration), as supplied in return for ‘loyalty’ or as paid for with part of the consideration for the main supply depends on a number of factors which I discussed in Chapter 3.

In order to substantiate my view that customer data can be a consideration for a supply, I will now discuss a selection of relevant CJEU case law and opinions from Advocate-Generals to the CJEU on this topic. I will discuss this case law in chronological order of publication. In literature about this topic, both outcomes (customer data can be consideration for VAT or it can not) can be found. The authors use the same CJEU case law as I will now discuss, with the emphasis on case law about whether or not a direct link exists between the ‘payment’ and the supply.2^,3

In his opinion regarding the CJEU Empire Stores-case, in which people that introduced themselves or another person as a new customer to Empire Stores, Advocate General Van Gerven held the following:4 “What is the advantage, and hence the consideration, received by Empire Stores? Under the 'self-introduction' scheme that advantage consists in two elements: (i) the obtaining of personal (…) information concerning the customer (…), in relation to which the national court states that such information has an economic value (…); and (ii) the serious chance that the customer introducing herself, induced by the gift, will order catalogue goods from Empire Stores, thus enabling the latter to extend its clientele. In the case of the 'introduce-a-friend' scheme Empire Stores receives the same advantages, (…).” and “(…) The essential point is that the advantage received by Empire Stores had an economic value for it. (…) As the national court observes in its provisional judgment, the value of the introduction unquestionably had a subjective value for Empire Stores, since it was prepared to give for it an article for which it had paid the cost price.”

In that same case,5 the CJEU held the following: “It is clear from the description of the schemes used by Empire Stores (…) that the supply of the article without extra charge is made in consideration of the introduction of a potential customer (…)”, “The link between the supply of the article without extra charge and the introduction of a potential customer must be regarded as direct, since if the service is not provided no article is due from or supplied without extra charge by Empire Stores.”6 In my view, the same should apply if introducing a (potential) customer is not rewarded by a payment in kind, but with vouchers (e.g. stamps) that can be exchanged for goods or services.

The Kuwait Petroleum case concerns the VAT treatment of 'free gifts', supplied as part of a scheme, using 'stamps', for the promotion of sales of fuel at petrol stations. In this case, the UK Tax Authorities (the Commissioners) had argued before the local courts that “if any consideration had been paid, it was of a non-monetary kind”.7 This issue was, however, not included in the questions referred to the CJEU. A reason for this could be that, as I demonstrated above, from a VAT perspective it would not have made a difference whether the gifts were actually supplied for free or for a consideration of a non-monetary kind. In this case, Kuwait Petroleum argued that part of the fuel price paid by its customers should be considered consideration for the supplies of the ‘free’ goods, as a result of which no (additional) VAT would have to be paid/remitted on the supply of these goods by Kuwait Petroleum. The CJEU disagreed with Kuwait Petroleum on this point.8 The Commissioners’ view supports my view that also ‘loyalty’ may be considered to be of value, or a consideration for a supply.

The third case that I consider relevant in this respect concerns a payment made by a landlord to a future tenant. In this case, the CJEU held9 that “(…) a (…) person who only pays the consideration in cash due in respect of a supply of services, or who undertakes to do so, does not himself make a supply of services (…). It follows that a tenant who undertakes, even in return for payment from the landlord, solely to become a tenant and to pay the rent does not, so far as that action is concerned, make a supply of services to the landlord. (…) However, the future tenant would make a supply of services for consideration if the landlord, taking the view that the presence of an anchor tenant in the building containing the leased premises will attract other tenants, were to make a payment by way of consideration for the future tenant's undertaking to transfer its business to the building concerned. In those circumstances, the undertaking of such a tenant could be qualified, as the United Kingdom Government in essence submits, as a taxable supply of advertising services.” From this case, it is clear that just being a customer is not of any value in the sense that it can be considered a consideration for a supply. There has to be more. In my view, being more than ‘just a customer’ or ‘someone that is prepared to pay the agreed price for a supply’, e.g. being a loyal customer by agreeing to repeatedly make purchases from the same business or of the same brand, could be considered more than ‘being just a customer’. The fact that a customer is loyal may have a value, which can possibly lead to a reciprocal transaction, where this loyalty is rewarded, and which may constitute a supply for consideration (in kind). But this has to be based on a legal agreement. I note that not all rewards for loyalty that are based on a legal agreement are supplies for a consideration. For example, volume discounts can be considered a reward for loyalty, but the difference between the original or full price and the price after deduction of the (volume) discount is, in my view, not subject to VAT – it is not ‘paid in kind’.10 The required volume is merely a condition for obtaining the discount. Being a loyal customer is not a supply. This could only be different under very specific circumstances.

Another requirement for ‘something in return’ to qualify as a consideration for VAT purposes is that the consideration is capable of being expressed in an amount assessed in money. In the words of the CJEU: “(…) it follows from the use of the expressions "against payment" and "everything received in return" first that the consideration for the provision of a service must be capable of being expressed in money, which is further confirmed by Article 9 of the Second Directive which stipulates that "the standard rate of value-added tax shall be fixed... at a percentage of the basis of assessment", that is to say at a certain proportion of that which constitutes the consideration for the provision of services, which implies that such consideration is capable of being expressed in an amount assessed in money; secondly that such consideration is a subjective value since the basis of assessment for the provision of services is the consideration actually received and not a value assessed according to objective criteria”.11 It may prove difficult to attach an actual value to customer data or loyalty. On the other hand, only a taxable person making a supply that is subject to VAT will have to determine the value of his supply. This means that only where customers that are taxable persons are rewarded for granting access to their user data, the valuation issue becomes relevant. This would also mean that these businesses should issue an invoice for the provision of access to their user data and charge and remit VAT on those services.

In some cases, it may be more clear that granting access to customer data should be qualified as a consideration for a supply (of the use of software, for example). For example, where a user that wishes to be granted access to a specific website or app can choose between targeted advertisement based on his personal user data or no advertisement at all in return for the payment of a specific fee, the granting access to customer data should, in my view, clearly be considered consideration for the access or use of the software (website, app or other) if no access to the service is granted without access to or use of the customer data.12

In my view, because customer data have a value for the businesses that accept this data in return for the use or access of their software, economic and commercial reality is that this should be treated as a barter transaction from an EU VAT perspective, even if determining the value of each supply (for determining the taxable amount under the current, positive, EU VAT rules) may prove difficult.