We will explain the tax regime applicable for the customers receiving loyalty points, and benefitting of different products in exchange of loyalty points, as part of such sales campaigns, and whether or not there are any tax reporting obligations for the individuals receiving them, or any tax withholding obligations for the Romanian company or marketing agencies granting such points.
Romanian retailers or companies from consumer products sector implement various marketing campaigns for sales increase, part of which they sometimes provide their clients with loyalty or fidelity points. The loyalty points can be further used by clients to obtain different discounts on other products, or to purchase some products free of charge. Generally, the overall purpose of such campaigns can be described as follows:
- create more visibility for their own products or services via different channels, such as written or digital media;
- facilitate closer contact between occasional customers and the company;
- reward customers enrolled in a loyalty program for their continued loyalty with the company’s brand.
The specific tax regime for loyalty points – exemption from taxation
According to the general Romanian taxation rules applicable to individuals, any type of income or benefit in kind obtained by an individual is considered taxable. From this perspective, any amount of money or any benefit received free of charge would represent a taxable income at the level of an individual.
The Romanian tax law provides, however, for a specific exemption from taxation which applies to loyalty (or bonus) points, advertising materials or samplings granted to customers with the purpose of increasing sales. More exactly, loyalty (or bonus) points used in marketing campaigns and with the purpose of increasing sales are specifically exempt from taxation, as per the provisions of art. 108, par. (2) of the Romanian Tax Code.
Along with the loyalty points, the same tax treatment is specified by the Romanian Tax Code also for other advertising or sampling materials that the companies may provide to customers for the purpose of stimulating their sales.
Thus, from the wording of the tax law provision, we can conclude that the specific tax exemption for loyalty/bonus points can be applied, without differentiation, to all types of materials/products distributed by companies as part of a loyalty program, for the purpose of stimulating their own sales (given that they are listed in the tax law together with products such as advertising materials, sampling materials etc.).
Therefore, no taxation applies to such incentives, and no tax reporting obligation arises, either for the individual customers, either for the company providing the incentives.
Attention:
This specific tax exemption cannot apply to prizes, for which a different tax regime applies according to the Romanian tax law provisions.
This means that, if the loyalty points are used by customers to acquire products at a discount or free of charge, then the use of the points to get certain benefits should not be considered a taxable event for the individual. More exactly, if a company were to actually sell their products as part of a promotional campaign, then providing them at a discount in exchange of the loyalty points should not be deemed taxable income at the level of the beneficiaries.
However, if the points are redeemed in exchange of products acquired by the company for the specific purpose of rewarding the participants for their loyalty, then their nature could be considered closer to that of prizes, in which case a different tax treatment must apply – i.e., benefit must be taxed as income from prizes.
Romanian market practice
Such loyalty schemes are widely used in Romania, each company that offers such programs tending to implement its own version, and the rewards may range from discounts to free own products (up to 100% discounts), to discounts applied by a variety of business partners (retail shops, electronic stores and so on), or even products received for free in exchange of loyalty/bonus points.
The most common loyalty programs in the Romanian market are conceived around providing rewards under the form of discounts to own products or services, which does not trigger a taxable event at the level of the benefitting individuals.
Some of the longest running such type of programs are the ones conducted by the mobile phone operators or by the pharmacies that offer loyalty points to customers based on the value of their monthly invoices or on the value of products acquired. The customers can then use these points as discounts when acquiring other goods or services from these companies (and in certain cases these discounts can even result in acquiring a mobile phone, a tablet or a gadget for free).
Considering the above, we can conclude that there are strong arguments to support a tax free approach for the loyalty points delivered as part of such loyalty program, and their conversion into products.