By Tom Fairless 

BRUSSELS-- Amazon.com Inc.'s tax arrangements in Luxembourg may give the U.S. online retailer an illegal advantage over competitors, European Union regulators said Friday, marking the latest phase of a widening crackdown on alleged sweetheart tax deals for multinationals.

Amazon is one of four companies whose tax affairs are being scrutinized by the European Commission, the EU's top antitrust authority, amid concerns that they constituted illegal aid from governments. Other targets of the investigation include Apple Inc., Starbucks Corp. and Fiat SpA, all of which face sizable back-tax demands if the regulator's suspicions are confirmed.

The probes represent an innovative move by the commission to combat tax avoidance in the absence of an agreement among the bloc's 28 governments. The commission has no authority to weigh in on national tax policies, but is empowered to police EU state-aid rules that prohibit selective subsidies.

In its preliminary decision Friday, which runs to 23 pages, the commission said the method that Luxembourg used to calculate taxes payable by Amazon, established under a 2003 agreement, didn't appear to comply with international guidelines. Amazon's European head office, Amazon EU Sarl, is based in Luxembourg and had net revenue of EUR13.6 billion ($15.82 billion) in 2013.

The commission said it doubted whether Luxembourg's authorities had properly assessed Amazon's tax liabilities given the 2003 deal was approved within "a very short period of time." It also expressed concern that the deal was still in force after more than a decade "without any revision".

In a statement, Luxembourg said it was "confident that the allegations of state aid in this case are unsubstantiated and that it will be able to convince the commission in due time of the legitimacy of the tax ruling."

A spokesman for Amazon said the company had received no special tax treatment from Luxembourg. "We are subject to the same tax laws as other companies operating here," he said.

At issue are the prices that multinational companies charge for goods or services sold by one subsidiary to another, known as transfer-pricing arrangements. These could be manipulated to allow companies to shift profits away from high-tax jurisdictions, so international guidelines require that they be determined at "arm's length," reflecting transactions that would take place between independent companies.

The commission questioned an internal royalty fee paid by Amazon EU Sarl to another Luxembourg subsidiary of Amazon, which has the effect of reducing Amazon's tax liabilities. The royalty is paid for the use of intellectual property, but "is not related to output, sales, or to profit," the regulator said.

"The commission is of the opinion that the Amazon ruling does not comply with the arm's length principle," it said. It asked Luxembourg to explain the nature of the intellectual property for which internal fees are paid, and to detail the scale of royalties over the past 10 years.

Amazon and other interested parties have several weeks to provide feedback before the commission announces its final decision.

Luxembourg's tax practices have come under a fierce spotlight in recent months after leaked documents revealed details of hundreds of highly favorable deals it has granted to companies including PepsiCo Inc. and FedEx Corp.

The Grand Duchy had until recently resisted the commission's requests for tax documents, and was fighting the case in court. But last month Xavier Bettel, the country's prime minister, agreed to share information on tax deals secured by multinational companies, after the commission also asked other EU countries to share their tax rulings.

Write to Tom Fairless at tom.fairless@wsj.com

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