Johnson & Johnson’s Irish Tax Structure: A Case Study in Profit Shifting and US Tax Base Erosion, and the Soaring Ireland-US Trade Surplus

Introduction

Johnson & Johnson (J&J), one of the world’s largest healthcare companies, has structured its international operations to minimise tax liabilities. At the centre of this strategy is Ireland, where the multi-jurisdictional corporate group (MJG) has built a complex network of subsidiaries to facilitate profit shifting.

Through treasury functions, intellectual property (IP) management, and intra-group transactions, J&J channels substantial profits through Ireland, significantly reducing its US tax obligations. This not only erodes the US tax base but also inflates Ireland’s trade surplus with the US, as billions in low-taxed profits accumulate offshore.

At the heart of these strategies is what can best be described as legal-accounting arbitrage – a sophisticated use of financial reporting rules across multiple jurisdictions to reduce tax liabilities.

Ireland as the Hub of J&J’s Tax Strategy

Ireland plays a critical role in J&J’s global tax-avoiding structure, taking advantage of the country’s favourable tax regime and regulatory environment, which allows extensive intra-group financial arrangements. Many of its Irish subsidiaries operate as unlimited companies, meaning they are not required to file publicly accessible financial accounts.

Some key subsidiaries in Ireland include:

• Janssen Sciences Ireland Unlimited Company, a major pharmaceutical division employing over 1,100 people.
• DePuy Ireland Unlimited Company, a significant medical device manufacturer.
• Janssen Irish Finance Unlimited Company and Johnson & Johnson Irish Finance Company Limited, which manage intra-group financial flows.
• Johnson & Johnson European Treasury Unlimited Company, which facilitates intercompany loans and interest payments.
• Johnson & Johnson Vision Care Ireland Unlimited Company, which focuses on medical device manufacturing.
• Other entities such as Janssen Pharmaceutical Unlimited Company, Cilag Holding Treasury Unlimited Company, and Actelion Treasury Unlimited Company, which help manage global financial flows.

These financial structures allow J&J to book large profits in Ireland, contributing to the significant trade surplus between Ireland and the US.

Below is a representation of the Irish subsidiaries within the MJG (the source of ownership data is Orbis historical):

How Profit Shifting Distorts Trade Figures

Research by Brad Setser highlights how profit shifting in the pharmaceutical sector distorts official trade statistics. US Pharma groups have real operations in Ireland. But they also transfer intellectual property rights/licenses, associated with Research/Development, to Irish subsidiaries, such that the profit from their assets on US sales gets located in Ireland, not the US.

This creates a misleading impression of trade flows between the two countries. Ireland appears to be exporting vast amounts of pharmaceutical products to the US, yet much of the value in these exports originates in the US. The politics of profit-shifting is all about the politics of valuation. The result is an artificially inflated trade surplus for Ireland and a corresponding trade deficit for the US.

While Ireland’s role as a hub for tax-driven corporate structures is well known, what is less understood is the complex network of legal contracts that underpin these arrangements. These contracts determine how assets, liabilities, and profits move across jurisdictions, exploiting gaps in international tax and accounting laws.

Why Trump’s Tax Reforms Failed to Curb Offshore Tax Avoidance

The 2017 Tax Cuts and Jobs Act (TCJA) was intended to discourage profit shifting, but Setser’s research shows that it failed to do so.

Although the act lowered the US corporate tax rate, it also introduced new incentives for IP-rich multinationals to keep profits offshore. The Global Intangible Low-Taxed Income (GILTI) regime, designed to reduce tax avoidance, effectively institutionalised a lower tax rate on offshore profits. This made it even more attractive for US pharmaceutical MJG’s to retain their tax structures in low-tax jurisdictions such as Ireland, Switzerland, and Singapore.

As a result, J&J and other Big-Pharma MJG’s have continued to report disproportionately high profits in tax havens while declaring minimal taxable income in the US, despite the US being their largest market.

How J&J Shifts Profits and Inflates Ireland’s Trade Figures

J&J’s tax structure operates within a broader multi-jurisdictional web of legal arrangements that include subsidiaries in the Netherlands, Switzerland, and Singapore. Some key mechanisms of profit shifting within the MJG include:

Intra-Group Loans and Interest Payments

J&J’s Irish treasury subsidiaries likely issue loans to related entities worldwide. Interest payments on these loans are tax-deductible in higher-tax jurisdictions, such as the US, reducing taxable income while allowing profits to accumulate in Ireland.

Intellectual Property Transfers and Licensing Agreements

J&J shifts IP rights and operational production (not the actual research and development) to Irish or Dutch subsidiaries. These subsidiaries then charge high licensing fees to other J&J entities worldwide. This strategy moves taxable income out of the US, reducing the company’s overall tax burden.

Dutch and Swiss Pass-Through Structures

Dutch subsidiaries often act as intermediaries, funnelling funds to Swiss entities that benefit from preferential tax treatment. Switzerland allows companies to retain earnings at low tax rates, further deferring or eliminating US tax obligations. Singapore also plays a role by offering tax incentives that help J&J minimise liabilities before profits are repatriated.

The result of these financial flows is that Ireland records soaring export revenues from pharmaceuticals, even though much of the actual economic value is generated elsewhere. The US, meanwhile, registers a trade deficit with Ireland despite American companies being the driving force behind these transactions.

Impact on the US Tax Base and Policy Responses

J&J’s global profit-shifting strategies have significant consequences for the US tax base. By keeping profits within Irish and other offshore subsidiaries, the company avoids billions in US corporate taxes.

Setser’s research shows that US pharmaceutical companies report far lower profits domestically than they actually generate. For example:

• AbbVie reports US losses while declaring massive offshore profits.
• Pfizer and Bristol Myers Squibb use tax planning strategies to pay much lower effective tax rates than the official US corporate rate.

To address these avoidance strategies, he argues that potential policy responses could include:

1. Raising the GILTI tax rate to discourage profit shifting.
2. Introducing a strict country-by-country minimum tax to prevent companies from blending high-tax and low-tax profits.
3. Reforming tax laws to limit the offshoring of intellectual property rights, which is a key driver of legal-accounting and tax arbitrage.

Donald Trump has rejected these ideas outright, making meaningful reform unlikely in the near term. Rather, his focus will be on tariffs.

Conclusion

J&J’s use of Ireland as a central jurisdiction in its tax strategy is part of a broader multinational effort to maximise profits while minimising tax liabilities. The MJG’s integration of Dutch, Swiss, and Singaporean entities into its financial structure highlights the complexity and scale of global profit-shifting mechanisms.

At the same time, this strategy has a secondary consequence – it significantly inflates Ireland’s trade surplus with the US, as profits generated by US firms are booked in Ireland rather than domestically.

Addressing these profit-shifting schemes requires targeted reforms to US tax policy. Increasing the GILTI tax rate, enforcing a strict country-by-country minimum tax, and revising laws to prevent the offshoring of intellectual property rights would be important steps to protecting the US tax base.

These “US-first” policy reforms would, obviously, significantly reduce the amount of corporate tax that is collected in Ireland.