Amazon reports 1.7 million pounds UK tax bill due to share deductions

LONDON (Reuters) - The main UK subsidiary of Amazon.com Inc had a tax bill of 1.7 million pounds ($2.21 million) on profits of 72.4 million pounds in 2017 thanks to deductions related to share-based awards to staff, accounts published this week show.

The tax affairs of Amazon, which on Thursday reported its largest ever profit of $2.5 billion in the second quarter, and other tech groups have been the subject of parliamentary scrutiny across Europe in recent years.

Amazon group books most of its $11.4 billion of UK revenues via a UK branch of Luxembourg-based Amazon EU Sarl, Amazon's main European operating unit. This subsidiary had a tax bill of 54.9 million euros ($63.7 million)last year, despite booking a 876 million euro loss that was partly driven by large inter-group royalty payments, its accounts show.

Amazon EU Sarl's UK branch doesn't publish accounts so it's unclear how much UK tax Amazon pays in total, but it's likely that bill was above the reported charge of 1.7 million pounds last year.

If Amazon UK Services Ltd had paid the prevailing rate of tax of around 19 percent on its profits, its total bill would have been 14 million pounds.

Unlike some European countries, Britain allows companies to take generous deductions for stock options and share awards and many companies, especially in the technology sector, use the rules to reduce their tax bills significantly.

"We pay all taxes required in the UK and every country where we operate," Amazon said in a statement.

"Corporation tax is based on profits, not revenues, and our profits have remained low given retail is a highly-competitive, low margin business," it added.

Amazon UK Services Ltd., which operates the internet retailer's warehouses and distribution network in the UK, reported 2 billion pounds of revenues in 2017 - cash it was paid by Amazon EU Sarl, to fulfill orders placed online.

Amazon has reduced its tax bill by having Amazon EU Sarl pay large royalty fees to a tax exempt partnership, also based in Luxembourg., an arrangement that was challenged, unsuccessfully, by the U.S. Internal Revenue Service.

Lawmakers in the UK and other countries have proposed new forms of taxes including additional taxes on revenues to tackle the tech giants' tax planning strategies. Such a measure could have more impact on Amazon because it operates on low or negative profit margins in Europe, unlike rivals whose margins can top 30 percent of revenues.

($1 = 0.7696 pounds)

($1 = 0.8619 euros)

(Reporting by Tom Bergin; editing by Emelia Sithole-Matarise)