Erik Steinbrenner

In the current Dynamics 365 Commerce loyalty functionality, loyalty points redemption is treated as a payment method, reducing the balance due on the transaction. While this may align with U.S. tax practices, it creates a serious compliance issue in EU and Nordic markets.

In many jurisdictions – including Norway – VAT is calculated before payments are applied. Therefore, when loyalty points are used as "payment," the system calculates VAT based on the full sales amount, even though the customer has effectively received a discount. This leads to:

• Incorrect VAT reporting (VAT is overstated).
• Reduced margins for the retailer (VAT paid on value not received).
• Possible compliance risk during audits.

Requested feature:

Introduce a configurable option (via loyalty setup or Commerce functionality) to allow redeemed loyalty points to be applied as a discount, either:

• As a manual order-level discount; or
• As a calculated loyalty discount line item before VAT calculation.

This would:

• Ensure VAT is calculated on the actual revenue received.
• Align D365 Commerce with EU tax requirements.
• Offer greater flexibility for international retailers.

Current workaround:

This requires custom development using POS triggers or CRT extensions to convert loyalty redemption to order discounts. Such workarounds introduce maintenance overhead and inconsistent behavior across channels.

Business impact:

For retailers operating in the EU, this is not just a feature request – it is essential for correct financial reporting and compliance.