Loyalty programs are a common phenomenon in the retail sector or any B2C business. These programs vary in terms of the criteria for membership, levels of membership, nature of benefits, how one earns the benefits, how one redeems the benefits, the stakeholders involved in operating the program (single / multi-vendor), fee charged from members and/or vendors, etc. Stamps, points, miles and nights are ultimately different means of securing loyalty benefits that can be redeemed for goods and/or services or discount on goods and/or services from the program operator or program participants.
Considering the peculiarities and multiplicity of transactions in each program it is critical for businesses to assess the VAT treatment of each transaction likely to qualify as a supply. The absence of specific guidance from the local tax authority coupled with the different interpretations by tax authorities in the region and globally compels businesses to take a measured VAT position. It is vital for businesses to consider, among other matter:
- Whether issuance of loyalty points (by whatever name) to customers triggers any VAT liability
- Whether transfer of loyalty points (without any consideration) triggers any VAT liability
- Whether sale of loyalty points (for a consideration) triggers any VAT liability
- Whether redemption of loyalty points by customers triggers any VAT liability
- Whether supply of goods or services against loyalty points, wholly or partially, triggers any VAT liability
- Whether a business can recover input VAT incurred on goods or services supplied on redemption of loyalty points
- Whether expiry/forfeit of loyalty points triggers any VAT liability for the business issuing the points
- How does VAT apply when loyalty points issued by one VAT registered business are redeemed with another VAT registered business? Does any settlement between the two businesses on account of the loyalty program trigger any VAT liability? Do the two businesses effect “deemed” supplies capable of triggering any VAT liability?
- What is the time of supply/tax due date in the above transactions?
- What documentation should a business maintain for the above transactions?
This above list of issues for consideration is only illustrative. In our experience, a detailed review of the VAT treatment of different supplies in a loyalty program could also warrant a review of/amendment to contracts, supporting documents, pricing, accounting and reporting. Therefore, it is recommended that businesses assess their VAT exposure, if any, on any loyalty programs run in Oman.
KPMG has a dedicated team of experienced indirect tax specialists based in Oman supported by a larger, experienced regional team. If you need assistance in analyzing the VAT implications on loyalty programs run by your business or any other VAT or indirect tax related matters in Oman, please reach out to your advisors at KPMG or the contacts mentioned below.