Following a three-year long investigation, the commission has concluded the tax arrangements between Ireland and the multinational tech firm are illegal.
Ireland’s corporation tax rate is already relatively low at 12.5 per cent, but the commission said Apple’s tax deal meant the firm was paying an effective corporate tax rate of less than 1 per cent.
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 fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014.”
Following the announcement, Ms Vestager added: “I have the feeling that if my objective tax rate were 0.05% falling to 0.005%, maybe I should have had a second look at my tax bill.”
Apple said it will challenge the ruling, paving the way for an international political and financial dispute over the European Commission’s role and authority.
What is Apple's strategy?
In a defiant statement, the tech firm accused the European Commission of launching “an effort to rewrite Apple’s history in Europe” and “upend the international tax system”.
The statement said: “The commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe.
“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.”
Irish finance minister Michael Noonan said that he “disagrees profoundly” with the commission’s findings, and has said Ireland is now seeking to appeal the decision.
In a statement he said: “I disagree profoundly with the commission’s decision. Our tax system is founded on the strict application of the law.”
He added: “The decision leaves me with no choice but to seek Cabinet approval to appeal the decision before the European Courts.”
The US Treasury has also responded to the commission’s decision. It said the ruling threatened the “business climate” between the US and Europe.
In a statement a spokesman said: “The Commission's actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU.
“We will continue to monitor these cases as they progress, and we will continue to work with the Commission toward our shared objective of preventing the erosion of our corporate tax bases,” the statement said.
Apple chief executive Tim Cook has issued a statement which says Apple did not ask for, nor receive a “special deal”, and said the commission is effectively seeking to “replace Irish tax laws”.
He said: “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 opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law.
“We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.”
He added: “The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe.”
The European Commission previously said tax benefits for selected companies amounted to illegal state aid. But Apple insisted it was “subject to the same tax laws as scores of other international companies doing business in Ireland”.
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Apple’s tax arrangements in Ireland are based on an agreement drawn up in 1991, when Apple was struggling against the PC boom, and another in 2007, which allowed the company to pay a significantly reduced rate of tax on profits over more than 10 years.
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