Amazon's Luxembourg-located tax affairs are under the scrutiny of the EU's Competition Commission as regulators and lawmakers in the bloc widen an investigation into tax avoidance strategies carried on at the European headquarters of big companies.
Amazon looks likely to join Apple, Starbucks and Fiat Finance and Trade, all of which are under investigation over how they process tax at trading hubs or subsidiary companies in places like Ireland, Luxembourg or the Netherlands.
The Financial Times revealed that Amazon's main European operating company, Amazon EU Sarl is being examined over whether its decisions on corporate tax complied with state aid rules.
An EU official told the FT: "We are looking into what kind of arrangement Luxembourg has with Amazon."
Amazon EU Sarl reduced the company's overall tax rate by 8 percentage points last year to 31.8%; it booked profits of €13.6bn in 2013 and was due some €2bn in legal though questionable royalty payments to another subsidiary, Amazon Europe Holding Technologies.
Luxembourg has fallen under the ambit of the commission's investigation into the commonly employed practice of transfer pricing - charges for goods and services between controlled (or related) legal entities within an enterprise. This is one way multi-national companies (MNCs) spread or reallocate earnings from the parent company's net profit.
According to the commission, Luxembourg has failed to co-operate fully with the investigation.
A recent report from the US PIRG Education Fund and Citizens for Tax Justice found that almost 50% of Fortune 500 companies have subsidiaries in the Netherlands. Nearly 35% book profits in Luxembourg, with 30% having subsidiaries domiciled in Ireland.
The report found that Apple booked $111.3bn through two Irish subsidiaries, which "ensures they pay no taxes to any government on the lion's share of their offshore profits".
Amazon was shown to have funnelled about £11bn through its Luxembourg-based subsidiary in 2013, yet paid only £4 million in UK corporation tax last year - 0.1% of the £4.3bn in sales that the company generated in the UK last year. The internet giant even claimed a £4m tax rebate from the Luxembourg Government.
Meanwhile, an EU expert group has been consulting since the start of 2014 on how best to tax large digital companies operating in Europe. Its recommendation of a so-called "destination-based VAT" for firms operating without clear permanent establishment is to be implemented by European lawmakers at the end of the year.