By Tom Bergin
LONDON (Reuters) - Amazon.com's main UK unit paid $3.7 million of taxes on its 2012 income, it said on Wednesday, despite group UK sales of $6.5 billion (4 billion pounds), prompting criticism from lawmakers and competitors.
Amazon.co.uk Ltd added in its accounts, published through the UK companies register, that it received 2.5 million pounds in government grants during 2012 - just ahead of the 2.4 million it paid in corporation tax, the UK form of corporate income tax.
Corporate tax avoidance has risen to the top of the political agenda in Europe following revelations in the past couple of years about how little big names like Apple Inc., Starbucks, Google and Microsoft pay in tax in markets where they reap billions of dollars in sales.
The companies say they follow the rules but UK Prime Minister David Cameron has called for international action on the shifting of profits, which can help firms cut tax bills.
Amazon.co.uk reported a small corporate income tax bill because all sales to British customers are routed through a Luxembourg affiliate, Amazon EU Sarl, which employs around 500 staff.
The British subsidiary, which employed 4,191 people at the end of 2012 and thousands more indirectly via contracting agencies, is deemed, for tax purposes, to be a service provider to the Luxembourg unit.
It is funded by fees it receives from Amazon EU and since these only just cover operating costs, little is left over for the UK tax authority, Her Majesty's Revenue and Customs (HMRC) to tax.
Amazon EU pays little tax in Luxembourg because it pays hundreds of millions of euros each year in fees to a tax exempt affiliate, also registered in Luxembourg.
Amazon was not immediately available for comment but has previously said it follows the tax rules in every country where it operates.
John Hemming, a member of parliament with the Liberal Democrats, the junior party in Britain's governing coalition, said the figures showed the inadequacy of existing rules to tackle the problem of profit shifting by major corporations.
"The government clearly needs to do a detailed study on how to handle the tax implications of e-commerce," he said.
But Nick Smith, a member of parliament with the opposition Labour party, said he wanted the tax authorities to take a close look at Amazon, describing its tax payment as "pathetic".
"HMRC should be going through this company's tax arrangements with a fine-tooth comb," he said.
Mark Brighton of Kew Books, which operates three bookstores in southwest London, said Amazon.co.uk's low tax bill highlighted the unfair competition small retailers like himself face.
Larger booksellers, electronics retailers and grocers have also criticized Amazon's arrangements in the past year.
In December, a committee of British lawmakers grilled an Amazon executive about the company's tax affairs and accused it of behaving "immorally".
Like other businesses, Amazon also pays taxes on employee wages and collects value added tax, a European form of sales tax, for the government.
Including adjustments in relation to previous years, Amazon.co.uk Ltd had a total tax charge of 3.2 million pounds.
($1 = 0.6554 British pounds)
(Reporting by Tom Bergin; Editing by Keiron Henderson and Mark Potter)