The EC concluded that Ireland granted undue tax benefits of up to £11.1bn to Apple between 2003 and 2014, which is illegal under EU state aid rules.
Ireland’s 12.5% corporate tax rate is one of the lowest in Europe, but Apple paid an effective corporate tax rate of just 1% on its European profits in 2003, down to 0.005% in 2014.
The tax treatment in Ireland, according to the EC, enabled Apple to “avoid” tax on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold.
We will appeal and we are confident the decision will be overturned
Commissioner Margrethe Vestager, in charge of competition policy, said, "Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years.”
In response, Apple has said that the decision “will have a profound and harmful effect on investment and job creation in Europe”. It intends to appeal the decision and is “confident” it will be overturned.
In a statement, the company continued, “The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process.
"The Commission's case is not about how much Apple pays in taxes, it's about which government collects the money.
"Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal and we are confident the decision will be overturned,” it said.
Ireland’s minister for finance, Michael Noonan, said he disagrees “profoundly” with the Commission’s decision and will seek to appeal it.
“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.
“It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment,” added Noonan.
Last week the US Department of the Treasury lashed out at the EC’s probes into tax avoidance by large multinationals, claiming they “undermine” international tax treaties. The investigations in recent years by the EC into Amazon, Apple, Starbucks and others will have an “outsized” effect on US companies, it said.
So far, the Commission has also launched in-depth probes into tax rulings issued by the Dutch and Luxembourg tax authorities to Starbucks, Fiat and Amazon.
In addition, the Commission has told Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Italy, Lithuania, Portugal, Romania, Slovakia, Spain and Sweden to provide individual tax rulings.
Apple CEO Tim Cook has had to defend the US tech giant consistently in recent years over accusations of using tax avoidance schemes.
In a recent interview, he described claims that Apple was running a scheme to pay little or no corporate tax on the massive cash piles it held overseas as “total political crap”.
According to a Securities and Exchange Commission report, Apple holds $181bn (£121bn) of offshore profits and would owe $59.2bn (£39.7bn) in taxes if it decided to bring the money back to the US.