Provisions for obligations from customer loyalty program

Whether provisions have to be recognized for obligations arising from a customer loyalty program depends on the structure of the loyalty bonus.

Customer loyalty programs have established themselves as a popular marketing tool. However, the tax treatment of the benefits depends on the structure of the program. The main question here is whether the program should be regarded as a discount on future purchases or as a discount on purchases already made. For example, if the customer is entitled to a free product or service after reaching a certain number of stamps, only this future purchase will be discounted.

If, on the other hand, the company issues bonus points or vouchers for each purchase as part of a loyalty card or customer loyalty program, depending on the final amount, which can then be used as a means of payment for subsequent purchases, the discount is already granted when the loyalty points are issued. In the second case, the Federal Fiscal Court is convinced that a provision for contingent liabilities must be formed for the points or vouchers not yet redeemed on the balance sheet date if it is likely that they will be used.