Johnson & Johnson's €6.7bn Irish dividend

US-based healthcare multi-national Johnson & Johnson received a near €7 billion dividend from one of its Irish subsidiaries last year, writes Barry O'Halloran

Accounts just filed with the Companies' Registration Office (CRO) show that Janssen Pharmaceutical in Cork paid New Jersey-based Johnson & Johnson a dividend of €6.7 billion for the 12 months ended January 31st, 2006.

The dividend was paid to its shareholders, named as Johnson & Johnson and Johnson & Johnson International on the company's CRO return.

Janssen, which is based in Titusville, New Jersey, specialises in treatments for mental illnesses such as schizophrenia and bipolar disorders. Its Irish plant at Little Island, Co Cork, produces active ingredients for these treatments.

The company is the latest in a long line of US multinationals to cash in on a tax amnesty designed to encourage businesses to return profits earned overseas and invest them in creating jobs in the US. The amnesty, introduced by the Homeland Investment Act (HIA), passed by the US Congress in 2004, allows the companies to receive once-off dividend payments from their subsidiaries.

They pay just 5.25 per cent tax on the total amount received, compared to the normal 35 per cent levy on corporate profits.

Under the amnesty's terms, the cash must be invested in the US, 85 per cent of the total dividend payments are then "shielded" from corporation tax, while the remainder is taxed at a reduced rate, which results in an overall rate of 5.25 per cent.

Fears that US corporations were investing too much abroad at the cost of American jobs and a need to shore up federal coffers in the wake of George Bush's tax cuts prompted Congress to pass the legislation.

The law sparked the repatriation of huge amounts of cash from the Republic to the US. Last year, a UN report on foreign direct investment showed that a total of €18 billion flowed out of the economy as a result.

The Janssen dividend ranks close to two of the biggest such repatriations that have been published to date: €1.05 billion returned by another pharmaceutical player, Forest Laboratories and €800 million transferred by technology giant Oracle.

The amounts involved are so big because many US multi-nationals operating here book profits from around the globe through their Irish subsidiaries in order to take advantage of the Republic's 12.5 per cent corporation tax rate.

The fact that the company booked €6.7 billion in profits in this jurisdiction implies that it could have paid around €830 million in tax - at 12.5 per cent - to the Republic's Exchequer.

However, the US amnesty applies to profits accumulated up to 2002, and so it is likely that a proportion of the money was taxed at the 10 per cent rate that applied exclusively to multi-national operators up to the late 1990s.

The accounts filed by Janssen show that profits before tax for the 12 months to the end of January last year were €1.72 billion.