Amazon.com has been engaged in a well-publicized battle with various states over sales tax issues. Now comes word that the online retail giant is facing a new tax headache in Japan. Japanese tax officials are serving up a $119 million tax bill to an Amazon company for unreported income over three years, according to published reports.

From MarketWatch:

The Tokyo Regional Taxation Bureau has determined that two Japanese wholly-owned subsidiaries of Amazon.com have in effect acted as branch offices of the affiliate, Amazon.com International Sales Inc., and now owe taxes for the three years through December 2005, the reports said.

The two subsidiaries -- Amazon Japan Logistics K.K. and Amazon Japan K.K. -- are commissioned to carry out merchandise distribution and other functions. The company has booked sales posted in Japan as those of the Seattle-based company, while paying only U.S. taxes on the sales.

It looks like Japanese authorities are taking a similar tack to states here in the U.S., which have been looking to categorize Amazon as a physical retailer through ts work with locally based marketing affiliates, thus forcing it to collect sales tax (though Amazon has responded by closing some affiliate programs).

Amazon made reference to its Japan tax issues in its last annual report:

In addition, in 2007, Japanese tax authorities assessed income tax, including penalties and interest, of approximately $119 million against one of our U.S. subsidiaries for the years 2003 through 2005. We believe that these claims are without merit and are disputing the assessment. Further proceedings on the assessment will be stayed during negotiations between U.S. and Japanese authorities over the double taxation issues the assessment raises, and we have provided bank guarantees to suspend enforcement of the assessment. We also may be subject to income tax examination by Japanese tax authorities for 2006 through 2008.

Looks like this skirmish is far from over.

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