No reporting is done in most countries.

In Germany the German airlines report their total awarded miles per year to the tax authorities and pay 2,25% on that as tax. Of course some see this as even worse since this way the employee gets awarded miles and the airline even pays for the income tax on them - double bonus.

There has been a quite big affair around it as it became public members of the German parliament used the miles earned in their trips for the government for private vacation which followed a court ruling later on that either the miles belong to the employer and cannot be used for private travel or have to be taxed as income.

Practically it looks like I said: the employee/customer does not need to report them in his tax statement or fear to get into trouble not doing so.

In other countries like here in Sweden no such initiative has been started (yet). So very different per country.