The announcement follows in the tracks of similar probes into the tax arrangements of iPhone-maker Apple in Ireland, coffee-shop chain Starbucks in the Netherlands and the financial arm of automaker Fiat, also in Luxembourg.
    
EU Competition Commissioner Joaquin Almunia told reporters that under a 2003 deal Amazon recorded most of its European profits through its Luxembourg arm, but that these profits were not taxed in Luxembourg.
    
"It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment which could amount to hidden subsidies," he said.
    
The European Commission has no jurisdiction over national tax policies - a cherished prerogative of member states, so the probes are strictly limited to rules governing free competition between EU countries.
    
Under the microscope are so-called "tax rulings", special arrangements made with tax authorities before a company chooses to domicile activities in a given country in the 28-nation EU.
    
Brussels regulators can intervene if they suspect that favourable tax deals amount to promises of indirect subsidies by governments that are seeking to attract businesses at the expense of other member states.
    
The Commission, the EU's executive arm, said the probe would "examine whether the decision by Luxembourg's tax authorities with regard to the corporate income tax to be paid by Amazon complies with the EU rules on state aid," the statement said.
    
Apple and Amazon and other mostly US-based multinationals have come under intense pressure from politicians and campaigners over their tax deals.
    
Critics saying sweetheart arrangements allow companies to move billions in earnings from higher taxed countries to lower taxed ones.
    
The investigation of Luxembourg's tax affairs also comes just weeks before Jean-Claude Juncker, the tiny country's former prime minister, is to take the reins of the European Commission.