Irish eye care division of Johnson & Johnson suffers €1.06 billion loss following agreement between Irish and American tax authorities
Johnson & Johnson Incurs €1.06 Billion Expense Due to Advanced Pricing Agreement
Johnson & Johnson (J&J) has incurred an exceptional €1.06 billion expense due to a new pricing agreement with Irish and US tax authorities. The agreement, which was reached through a mutual agreement procedure and includes an advanced pricing agreement (APA), is intended to provide greater certainty and clarity on the appropriate pricing for intra-company transactions between the two jurisdictions.
The APA between Johnson & Johnson Vision Care Ireland UC and tax authorities is a negotiated arrangement that establishes a mutually agreed framework for how transfer prices are set between J&J's Irish unit and its US operations. This agreement was reached to resolve past transfer pricing issues and avoid potential disputes by agreeing in advance on pricing methods, which govern how profits are allocated and taxed between the US and Ireland.
Across Ireland, J&J employs more than 6,000 people across 10 sites in five counties - Cork, Dublin, Limerick, Galway, and Mayo. Johnson & Johnson Vision Care Ireland UC, in particular, employs 1,692 people at its base in Limerick, Ireland. The company's operations in Ireland mainly focus on the manufacture and sale of contact lens-related products.
The one-time expense was financed by a company subsidiary, Vision Care Finance UC, transferring €1.06 billion in cash to Johnson & Johnson Vision Care Ireland UC on February 13th, 2023. The funds were used by Johnson & Johnson Vision Care Ireland UC to settle the intercompany payable position with its US affiliate.
Despite the one-time expense, the company's profits accounted for non-cash depreciation charges of €83 million, R&D costs of €19 million, and R&D tax credits of €4.8 million. After accounting for corporation tax charges of €35.69 million, the company recorded profits of €406.68 million for the year.
The agreement is viewed positively by the company since it reduces uncertainty about future pricing and tax arrangements. The company had accumulated profits of €3.3 billion at the end of 2023, and the funds transferred by Vision Care Finance UC are expected to help Johnson & Johnson Vision Care Ireland UC continue generating healthy profits, forecast to increase further due to planned production increases in future years.
In summary, the nature of the agreement is a binding arrangement negotiated between US and Irish tax authorities that sets transfer pricing rules for Johnson & Johnson's Irish eyecare unit. The purpose is to provide pricing certainty and avoid transfer pricing disputes by pre-defining how profits and expenses are allocated between US and Irish entities. The agreement was reached by a mutual agreement procedure and included an advanced pricing agreement between tax authorities, resulting in a one-time tax charge but better clarity and certainty for future operations.
[1] Johnson & Johnson Vision Care Ireland UC, Annual Report and Financial Statements 2023 [2] Revenue Commissioners, Press Release: Advanced Pricing Agreement Signed with Johnson & Johnson, December 2024
- The advanced pricing agreement (APA) between Johnson & Johnson Vision Care Ireland UC and tax authorities, a binding arrangement for transfer pricing rules, was reached in the business of financing to provide greater certainty for future finance-related transactions between the Irish unit and its US operations.
- Despite the exceptional one-time expense of €1.06 billion due to the APA, Johnson & Johnson's business in Ireland, particularly Johnson & Johnson Vision Care Ireland UC, continued to report profits and forecast an increase in future years, emphasizing the positive impact of the agreement on their financial plans.
