The US technology giant Apple must pay Ireland up to a record 13 billion euros (14.5 billion dollars) in illegally granted tax benefits, the European Commission ruled Tuesday, in an eagerly awaited landmark decision that Ireland now plans to appeal.
"Ireland granted illegal tax benefits to Apple which enabled it to pay substantially less tax than other businesses over many years," said EU Competition Commissioner Margrethe Vestager.
"This selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003, down to 0.005per cent in 2014," she added.
The Apple case, which the commission has been looking into since mid-2013, is one of several high-profile probes into tax deals that EU member states granted multinationals including Starbucks, Amazon and McDonald's.
The European Union's executive found that Apple's sales profits in Ireland, where the company has its European headquarters, were allocated in a way that "did not correspond to economic reality."
Most of the profits generated in Europe were allocated to head offices that "existed only on paper" and did not have to pay taxes anywhere, the commission said in a statement.
It demanded that Ireland recoup unpaid taxes from 2003 - 10 years before the start of its inquiry - until 2014, when Apple changed its structure in Ireland.
Dublin immediately announced plans to appeal the decision before the European courts.
"This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation," said Irish Finance Minister Michael Noonan.
Taxation is usually a national competence in the 28-country EU, but the commission believes it can intervene because these tax arrangements constitute state aid, an area it regulates. Unfair state aid could give companies a competitive advantage.
But the Irish government said the approach is "not appropriate," in a statement that expressed "very real concerns" that the commission is "undermining the international consensus, impeding reform and creating uncertainty for business and investment in Europe."
Last year, the commission ordered the Netherlands and Luxembourg to recoup taxes from the Starbucks coffee chain and a Fiat subsidiary. Inquiries are still under way into benefits granted to online retailer Amazon and the McDonald's restaurant franchise.
The US Treasury lashed out last week at the commission's approach, arguing that it is "inconsistent" with international norms and undermines the global fight against tax avoidance.
Washington said member states should not be forced into recovering unpaid taxes, warning that it was considering "potential responses" to the commission's approach, in a Treasury publication.