Japan has ordered a sales affiliate of US online retail giant Amazon.com to pay about $119 million in tax for unreported income over a three-year period.

Amazon Japan Logistics and Amazon Japan have in effect acted here as branch offices of the affiliate, Amazon.com International Sales Inc., but the income has been reported in the United States by the Seattle-based company, sources familiar with the matter said today.

Based on the findings, the Tokyo Regional Taxation Bureau appears to have told Amazon.com International Sales that it should have declared a substantial amount of the income gained through transactions in Japan to Japanese tax authorities, the sources were quoted as saying by the Kyodo news agency.

The tax bureau reportedly judged that the company should have paid tax in Japan for the income made in the country during the three years to 2005.

Dissatisfied with the order, Amazon.com has requested the tax authorities in Japan and the US to discuss the matter in light of the bilateral tax treaty, the agency said.

The pact frees US companies that engage in business in Japan without “permanent establishment” like branch offices from having to file a tax return or pay taxes to the Japanese government.

Amazon.com disclosed that it had been told by Japanese tax authorities to pay $119 million in back taxes, in its annual report for its 2008 business year.