BRUSSELS/DUBLIN (Reuters) - The European Commission ordered Apple Inc to pay Ireland unpaid taxes of up to 13 billion euros ($14.5 billion) on Tuesday as it ruled the firm had received illegal state aid.

Apple and Dublin said the U.S. company’s tax treatment was in line with Irish and European Union law and they would appeal the ruling, which is part of a drive against what the EU says are sweetheart tax deals that usually smaller states in the bloc offer multinational companies to lure jobs and investment.

The U.S. feels its firms are being targeted by the EU and a U.S. Treasury spokesperson warned the move threatens to undermine U.S. investment in Europe and “the important spirit of economic partnership between the U.S. and the EU.”

Starbucks Corp has been ordered to pay up to 30 million euros ($33 million) to the Dutch state, while Amazon.com Inc and McDonald’s Corp are also under investigation by the Commission, the EU’s executive arm.

Apple’s stock fell less than 1 percent.

EU Competition Commissioner Margrethe Vestager questioned how anyone might think an arrangement that allowed Apple to pay a tax rate of 0.005 percent, as Apple’s main Irish unit did in 2014, was fair.

“Tax rulings granted by Ireland have artificially reduced Apple’s tax burden for over two decades, in breach of the EU state aid rules. Apple now has to repay the benefits,” Vestager told a news conference.

Analysts said the size of the claim underlined the Commission’s aggressive stance, but since each case involves different circumstances and tax rules, lawyers said it was hard to see if further big claims were any more or less likely.

Apple, which had more than $200 billion in cash and readily marketable securities at the end of June, is likely to see the case drag out for years in EU and possibly Irish courts.

Apple warned investors in a July regulatory filing that the Commission’s investigation could lead to “material” liability for further tax payments, but that it could not estimate the impact. On Tuesday the company said it expects to place “some amount of cash” in an escrow account.

Tax experts say the European Commission faces a tough battle to convince courts to back up its stand. While the EU has found that certain tax regulations are anti-competitive, it has never before ruled whether countries have applied tax regulations fairly in the way it has with Apple, Starbucks and others.

As a result, some lawyers and accountants said they doubted Apple would end up paying back any tax.

“I am not persuaded by the reasoning the EU has applied,” said Tim Wach, global managing director at international tax advisers Taxand.

“ARTIFICIAL” ARRANGEMENT The EU’s ruling challenges the way that Ireland agreed to tax the profits of Irish-registered Apple subsidiaries, through which most of its non-U.S. profits flowed.

Apple Inc licenses the rights to technology designed in the United States to Irish subsidiaries. These then hire contract manufacturers to make devices which they sell to Apple retail subsidiaries around Europe and Asia.

Since the manufacturing cost is a small portion of device sales prices and retail subsidiaries are allocated a small operating margin, Apple Ireland is very profitable. In 2011, it earned $22 billion after paying $2 billion to its U.S. parent in relation to the rights to Apple intellectual property.

However, the Irish tax authority agreed only 50 million euros of this was taxable in Ireland, the European Commission said. Under the terms of Apple’s tax deal, first agreed in 1991 and renewed in 2007, Apple could allocate most of the profits earned by its Irish operating units to a “head office” that did not have any employees or own any premises.

“This ‘head office’ had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter,” the Commission said.

The Commission said this agreement had no basis in tax law and was not available to others, and so represented state aid.

Irish Finance Minister Michael Noonan said he profoundly disagreed with the decision and in order to preserve Ireland’s attractiveness for investment he would appeal.

“There is no economic basis for this decision. It’s bizarre and it’s an exercise in politics by the Competition Commission,” Noonan said.

“They don’t have responsibility for taxes and they are opening a back door through state aid to influence tax policy in European countries when the European treaties say tax policy is a matter for sovereign governments,” he added.

An Apple logo is seen in the window of an authorised apple reseller store in Galway, Ireland August 30, 2016. REUTERS/Clodagh Kilcoyne

Ireland’s low corporate tax rate has been a cornerstone of the country’s economic policy for decades, drawing investors from multinational companies whose staff account for almost one in 10 of the country’s workers.

For many technology firms like Google and Facebook, a key attraction is that Ireland allows companies to adopt tax structures which see them pay much less than the 12.5 percent headline rate. The companies say they follow all tax rules.

Apple said it was confident of winning an appeal.

“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,” CEO Tim Cook said in a letter to customers posted on Apple’s website.

“A company’s profits should be taxed in the country where the value is created,” he added.

U.S. OPPOSITION The U.S. Treasury Department published a white paper last week in which it said it was looking at possible responses to what it sees as unfair targeting of its firms, which could include extra taxes on the U.S. arms of European companies.

The paper noted that the EU executive’s tax rulings could cost the U.S. exchequer money.

Under U.S. tax law, Apple’s Irish profits are taxable if brought back to the United States – something the company would have to do if it wanted to use the money to pay dividends.

But any tax paid in Europe is reduced from the tax due in the United States. The Treasury has said the Commission’s approach was at odds with EU tax law and international treaties.

The Commission, which has also ruled European companies including carmaker Fiat and Swedish engineer Atlas Copco AB must pay tax claims worth over $350 million, said its application of competition law to tax rulings followed EU law and treated all companies equally.

Nonetheless, the Netherlands, Belgium and Luxembourg have already appealed EU rulings against their tax deals with multinationals.

Apple employs 5,500 people in areas such as logistics and distribution in the Irish city of Cork, which has about a quarter of Apple’s Europe-based staff.

Slideshow (7 Images)

The Commission has previously said Apple’s tax treatment had been “motivated by employment considerations.”

Apple has said it paid Ireland’s 12.5 percent rate on all the income that it generates in the country.

Apple Chief Financial Officer Luca Maestri decried the effective tax rate cited by Vestager as “a completely made-up number.</s>In this Friday, May 13, 2016, file photo, a man uses his mobile phone near an Apple store in Beijing.

BRUSSELS — Apple will have to pay up to $14.5 billion plus interest in back taxes to Ireland after the European Union found Tuesday that the U.S. technology giant had paid next to no tax across the bloc's 28 countries for over 11 years.

The EU says that many multinationals — including Starbucks, Fiat and Amazon — struck deals with EU countries to pay unusually low tax in exchange for basing their EU operations there.

EU Competition Commissioner Margrethe Vestager said that a three-year investigation found Ireland granted such lavish tax breaks to Apple that the multinational's effective corporate tax rate on its European profits dropped from 1 percent in 2003 to a mere 0.005 percent in 2014.

That last tax rate meant that for each 1 million euros in profits, Apple paid just 50 euros in taxes, Vestager told a news conference.

"Member states cannot give tax benefits to selected companies. This is illegal under EU state aid rules," Vestager said.

"Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to 13 billion euros ($14.5 billion), plus interest," the Commission said in a statement.

For Ireland, a country of barely 4.6 million people, that sum would be a huge windfall — equivalent to over $3,150 for every man, woman and child.

And yet the country's government said it would appeal the decision, arguing it had granted no favorable treatment to Apple.

"Ireland's position remains that the full amount of tax was paid in this case and no state aid was provided," the government in Dublin said in a statement. "Ireland does not do deals with taxpayers."</s>The European Union on Tuesday ordered Ireland to collect up to $14.5 billion in back taxes, plus interest, from Apple Inc., after ruling that the technology giant cut an illegal deal that allowed it to pay almost no taxes from 2003 to 2014 on profits for sales throughout the 28-nation region.

The decision, which follows a two-year investigation, marks the biggest step yet in Europe's controversial efforts to crack down on multinational corporations channeling profits through foreign subsidiaries to avoid or reduce tax payments.

U.S. officials have criticized the European Union's push to collect additional taxes from U.S. companies, an effort that also has involved investigations of Starbucks Corp. and Amazon.com, Inc.

But European officials said "selective tax treatment" of some companies gives them an unfair advantage over others.

"Member states cannot give tax benefits to selected companies — this is illegal under EU state aid rules," said Margrethe Vestager, the top competition official for the European Commission, the EU's executive body.

The tax deal with Ireland, where Apple has two subsidiaries, allowed the Cupertino company to have an effective corporate tax rate of 1% in 2003. The rate fell to 0.005% in 2014, meaning Apple paid just $50 on every $1 million in profits, the commission said.

Ireland is an attractive location for foreign subsidiaries because its 12.5% corporate tax rate is one of the lowest in the developed world. Conversely, the U.S. corporate tax rate of 35% is the highest among the 35 members of the Organisation for Economic Development and Cooperation, although many companies pay less because of tax breaks.

But a 2013 investigation by a U.S. Senate panel said that Apple had made a deal with Ireland to lower its corporate tax rate even further.

The deal was part of an elaborate web of offshore subsidiaries that allowed Apple to avoid paying at least $15 billion in U.S. taxes on $44 billion in foreign income from 2009-12, according to a bipartisan report by the Senate's Permanent Subcommittee on Investigations.

In 2013, the Senate panel called Apple Chief Executive Tim Cook to a high-profile hearing in which he insisted the company's tax arrangements were legal and fair.

On Tuesday, Cook defended the company's operations in Ireland, which date to the opening of a factory in Cork in 1980.

"Over the years, we received guidance from Irish tax authorities on how to comply correctly with Irish tax law — the same kind of guidance available to any company doing business there," Cook said in a letter posted on the company's website. "In Ireland and in every country where we operate, Apple follows the law and we pay all the taxes we owe."

Cook said the European Commission's action was "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," he said. "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."

Cook said he was confident that the ruling will be reversed after an appeal by Ireland. Apple stock was down slightly in early trading Tuesday.

The commission ruling ordered Ireland to collect the extra tax revenue from Apple. While Apple has paid "substantially and artificially lowered" taxes to Ireland since 1991, the commission is only allowed to order the recovery of taxes for 10 years before it first requested information about the arrangements in 2013.

Ireland's Finance Minister, Michael Noonan, said Tuesday he would seek approval from his government's cabinet to appeal.

"I disagree profoundly with the commission's decision," he said. "Our tax system is founded on the strict application of the law...without exception."

The U.S. Treasury Department issued a report last week critical of the European Unions tax investigations, saying they could lead to lost tax revenue for the U.S. government and harm cross-border investment. Treasury Secretary Jacob J. Lew has raised his concerns with the president of the European Commission.

In a statement Tuesday, Treasury did not comment specifically on the Apple allegations but said U.S. officials were "disappointed that the commission is acting unilaterally."

"The commission's actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the E.U," Treasury said.</s>BRUSSELS -- The European Union on Tuesday ordered Apple Inc. to pay nearly $15 billion in back taxes to Ireland, plus billions more in interest.

The ruling is an escalation by the EU in its battle to have multinational corporations pay taxes in the region. Concern about corporate tax payment has grown in the EU after years of financial crises and tight budgets. The ruling also risks tension with the United States, which argues that the EU is picking on American companies and depriving it of potential tax windfalls of its own.

At the heart of the matter is the EU's claim that many multinationals -- including Amazon and McDonald's -- struck deals with EU countries to pay low tax rates in exchange for basing their EU operations there.

EU Competition Commissioner Margrethe Vestager said a three-year investigation found that Ireland granted tax breaks to Apple that lowered the effective corporate tax rate on its European profits from 1 percent in 2003 to 0.005 percent in 2014.

That last tax rate meant that for each $1.1 million in profits, Apple paid $55.72 in taxes, Vestager said Tuesday at a news conference.

"Member states cannot give tax benefits to selected companies -- this is illegal under EU state aid rules," Vestager said.

U.S. officials have warned that the EU's executive commission is overstepping its power given that taxes are typically left to national governments to oversee and that European officials should not retroactively issue penalties in tax rulings. They also emphasized that such cases undermine continuing efforts to overhaul global policies and create measures to curtail tax avoidance.

"U.S. companies are the grandmasters of tax avoidance," said Edward Kleinbard, a professor at the Gould School of Law at the University of Southern California and a former chief of staff to the congressional Joint Committee on Taxation.

"Nevertheless, because of the nature of U.S. politics," he said, the Apple case "will be framed by the U.S. as Europe overreaching and discriminating against 'our team.'"

For Ireland, a country of barely 4.6 million people, the sum to be recovered would equal about $3,150 for every man, woman and child.

The Irish government said it would appeal the decision, arguing that it had granted no favorable treatment to Apple.

Ireland has for years offered low corporate tax rates to multinationals, a common strategy among Europe's smaller nations, including Luxembourg and the Netherlands.

Because the countries are small, they gain from even small amounts of tax on multinationals' huge revenue. They also benefit from the jobs created locally. Apple has 5,500 workers in Ireland, making it one of the biggest private-sector employers.

The Irish government insisted that Apple had paid its full amount of tax and that no state aid was provided.

"It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment," said Irish Finance Minister Michael Noonan. "Apple has been in Ireland since the 1980s and employs thousands of people in Cork."

Apple likewise claimed that it had followed the law and paid every cent of what it owed.

"The most profound and harmful effect of this ruling will be on investment and job creation in Europe," Apple Chief Executive Officer Tim Cook said in a letter published on the company's website.

"Every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed."

Luca Maestri, Apple's chief financial officer, accused the EU of using a "completely made-up number" and said there was "no special deal" from Ireland.

The European Commission denied Cook's claim, saying it is relying on a history of using state-aid rules related to corporate tax issues.

"No rules have been changed -- not one rule," the EU's Vestager said at the news conference. "This is a question of paying unpaid taxes."

Apple and Irish government officials said they would challenge the EU action in the European courts and predicted that they would be vindicated.

Apple shares fell 82 cents to close Tuesday at $106 in New York, a modest drop that reflects expectations that Apple can afford the settlement, should it stand. Apple made $10.5 billion in the first three months of this year.

The EU ruling raises the difficult question of how to fairly tax multinationals -- in their home countries, where the bulk of their goods are developed, or in the countries where the goods are sold.

Currently, the setup allows Apple to record in Ireland all of its sales across the EU's 28 nations and 500 million consumers.

That internal company practice, as well as two favorable Irish tax rulings in 1991 and 2007, "enabled Apple to avoid taxation on almost all profits generated by the sale of Apple products in the entire EU single market," according to the European Commission.

The critics of the EU's campaign against tax avoidance argue that its latest ruling tramples on the sovereignty of a country and its elected government.

Apple accused the EU executive body of engaging in efforts "to rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process."

Some analysts say that with the EU reeling from Britain's decision to leave to bloc, the last thing it needs is more uncertainty for businesses. Supporters say the ruling is a step forward in harmonizing tax laws between EU countries.

Either way, the EU's move risks fueling tensions with the U.S., which complains that it is singling out American companies.

"They're going after Apple, which means a big name and big dollars," said Brad Badertscher, a corporate tax expert at the University of Notre Dame's Mendoza College of Business. "It's a big shot across the pond to U.S. companies."

As of June, Apple had more than $200 billion stashed outside the U.S. The U.S. government cannot tax any of that money unless it is repatriated.

The U.S. Treasury Department said it was disappointed by the EU's decision, saying retroactive tax assessments by the EU Commission "are unfair, contrary to well-established legal principles and call into question the tax rules" of the individual countries in the EU.

At stake for the Treasury is some of the potential tax revenue on more than $2 trillion in profit that U.S. multinationals have parked overseas. While the EU isn't directly targeting that cash hoard, new tax cases filed by the EU could significantly reduce the revenue that the U.S. government could collect from it.

The U.S. tax code, which sets a top corporate income tax rate of 35 percent, allows companies to defer paying that tax on their foreign income until they decide to bring it home via "repatriation." Over the past few years, the U.S. Congress and President Barack Obama's administration have been unable to agree on a plan to induce companies to repatriate their earnings at a reduced tax rate. Obama has proposed 14 percent; House Republicans this year proposed 8.75 percent.

Peter Vale, a Dublin-based corporate tax expert for the accounting firm Grant Thornton, calculated that the ruling, if upheld, could ultimately cost Apple $21 billion because the EU order also includes interest.

The EU decision will require the Irish tax collection agency to demand a payment soon from Apple, Vale said. Any money will be placed in a hands-off escrow account pending what could be years of litigation before the European Court of Justice in Luxembourg, he said.

Information for this article was contributed by John-Thor Dahlburg, Shawn Pogatchnik and Brandon Bailey of The Associated Press; by Dara Doyle, Stephanie Bodoni, David Kocieniewski and Lynnley Browning of Bloomberg News; and by James Kanter and Mark Scott of The New York Times.</s>BRUSSELS — Apple will have to pay up to 13 billion euros ($18.9 billion) plus interest in back taxes to Ireland after the European Union found Tuesday that the U.S. technology giant received illegal tax benefits over 11 years.

The ruling is the biggest salvo in the EU executive Commission’s battle to have multinationals pay their fair share in the region. The EU alleges that many big companies struck deals with EU countries to pay unusually low tax in exchange for basing their EU operations there.

EU Competition Commissioner Margrethe Vestager said that a three-year investigation found Ireland granted such lavish tax breaks to Apple that the multinational’s effective corporate tax rate on its European profits dropped from 1% in 2003 to a mere 0.005% in 2014.

That last tax rate meant that for each million euros in profits, Apple paid just 50 euros in taxes, Vestager told a news conference.

“Member states cannot give tax benefits to selected companies—this is illegal under EU state aid rules,” Vestager said.

“Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to 13 billion euros ($18.9 billion), plus interest,” the Commission said in a statement.

Apple said in a statement that it had followed the law and paid every cent of the taxes it owed. It said it would challenge the EU action in the European courts, and predicted it would be vindicated.

The Irish government denied granting favourable fiscal treatment to the maker of the iPhone and other consumer electronics products, computer software and online services. “Ireland’s position remains that the full amount of tax was paid in this case and no state aid was provided,” the Irish statement said. “Ireland does not do deals with taxpayers.”

Apple accused the EU executive body of engaging in efforts “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,” the company said in a statement. “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.”

The Irish finance minister, Michael Noonan, said he would seek approval from the Irish Cabinet to legally challenge the EU Commission’s ruling.

“It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment,” Noonan said. “Apple has been in Ireland since the 1980s and employs thousands of people in Cork.”

A statement from the U.S. government was expected later Tuesday.

In a white paper made public last week, the U.S. Treasury Department accused the European Union of using a different set of criteria to judge cases involving American companies, calling the potential penalties “deeply troubling.”</s>EU demands Apple pay Ireland up to 13 bln euros in tax

BRUSSELS, Aug 30 (Reuters) - EU antitrust regulators ordered Apple on Tuesday to pay up to 13 billion euros ($14.5 billion) in taxes plus interest to the Irish government after ruling that a special scheme to route profits through Ireland was illegal state aid.

The massive sum, 40 times bigger than the previous known demand by the European Commission to a company in such a case, could be reduced, the EU executive said in a statement, if other countries sought more tax themselves from the U.S. tech giant.

Apple, which with Ireland said it will appeal the decision, paid tax rates on European profits on sales of its iPhone and other devices and services of between just 0.005 percent in 2014 and 1 percent in 2003, the Commission said.

"Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years," said Competition Commission Margrethe Vestager, whose crackdown on mainly U.S. multinationals has angered Washington which accuses Brussels of protectionism.

Online retailer Amazon.com Inc and hamburger group McDonald's Corp face probes over taxes in Luxembourg, while coffee chain Starbucks Corp has been ordered to pay up to 30 million euros ($33 million) to the Dutch state.

A bill of 300 million euros this year for Swedish engineer Atlas Copco AB to pay Belgian tax is the current known record. Other companies ordered to pay back taxes in Belgium, many of them European, have not disclosed figures.

For Apple, whose earnings of $18 billion last year were the biggest ever reported by a corporation, finding several billion dollars should not be an insurmountable problem. The 13 billion euros represents about 6 percent of the firm's cash pile.

As of June, Apple reported it had cash, cash equivalents and marketable securities of $231.5 billion, of which 92.8 percent, or $214.9 billion, were held in foreign subsidiaries. It paid $2.67 billion in taxes during its latest quarter at an effective tax rate of 25.5 percent, leaving it with net income of $7.8 billion according to company filings.

The European Commission in 2014 accused Ireland of dodging international tax rules by letting Apple shelter profits worth tens of billions of dollars from tax collectors in return for maintaining jobs. Apple and Ireland rejected the accusation.

"I disagree profoundly with the Commission," Irish Finance Minister Michael Noonan said in a statement. "The decision leaves me with no choice but to seek cabinet approval to appeal.

"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."

Ireland also said the disputed tax system used in the Apple case no longer applied and that the decision had no effect on Ireland's 12.5 percent corporate tax rate or on any other company with operations in the country.

Apple said in a statement it was confident of winning an appeal.

"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. It will have a profound and harmful effect on investment and job creation in Europe."

When it opened the Apple investigation in 2014, the Commission told the Irish government that tax rulings it agreed in 1991 and 2007 with the company amounted to state aid and might have broken EU laws.

The Commission said the rulings were "reverse engineered" to ensure Apple had a minimal Irish bill and that minutes of meetings between Apple representatives and Irish tax officials showed the company's tax treatment had been "motivated by employment considerations."

Apple employs 5,500, or about a quarter of its Europe-based staff, in the Irish city of Cork, where it is the largest private sector employer. It has said it paid Ireland's 12.5 percent rate on all the income that it generates in the country.

Ireland's low corporate tax rate has been a cornerstone of economic policy for 20 years, drawing investors from multinational companies whose staff account for almost one in 10 workers in Ireland.

Some opposition Irish lawmakers have urged Dublin to collect whatever tax the Commission orders it to. But the main opposition party Fianna Fail, whose support the minority administration relies on to pass laws, said it would support an appeal based on reassurances it had been given by the government.

The U.S. Treasury Department published a white paper last week that said the EU executive's tax investigations departed from international taxation norms and would have an outsized impact on U.S. companies. The Commission said it treated all companies equally. (Additional reporting by Padraic Halpin in Dublin, Robin Emmott, Philip Blenkinsop, Robert-Jan Bartunek and Alastair Macdonald in Brussels and Eric Auchard in Frankfurt; Writing by Alastair Macdonald; Editing by Philip Blenkinsop)</s>The European Commission has ordered Ireland to recoup 13 billion euro (£11.1 billion) from tech giant Apple over a sweetheart tax deal.

A three-year investigation by Competition Commissioner Margrethe Vestager found the arrangements dating back to the early 1990s were illegal under state aid rules.

She said it allowed Apple to pay substantially less tax than other businesses - 1% on its European profits in 2003 and 0.0005% in 2014.

The Republic's tax inspectors have been told to recover the unpaid billions.

"Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules," the commissioner said.

"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."

Ms Vestager found two tax rulings issued by Ireland to Apple which she said substantially and artificially lowered the tax paid by the multinational maker of iPhones and iPads.

She said the arrangements to establish the taxable profits for two Irish incorporated companies of the Apple group - Apple Sales International and Apple Operations Europe - did not correspond to economic reality.

The commissioner said almost all sales profits recorded by the two companies were internally attributed to a "head office" which only existed on paper and could not have generated such profits.

Her inquiry found the profits were not subject to tax anywhere.

Ireland's Finance Minister Michael Noonan said he profoundly disagreed with the verdict.

His office said the Republic does not do "deals" with taxpayers.

"Our tax system is founded on the strict application of the law ... without exception," Mr Noonan said.

The minister said he would seek Government support to challenge the commissioner's findings in 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," he said.

"It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment."</s>The European Union says Ireland has given illegal tax benefits worth up to 13 billion euros (NZ$20.08bn) to Apple and must now recover the unpaid back taxes from the US technology company, plus interest.

EU Competition Commissioner Margrethe Vestager said: "Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules."

The announcement was made on Tuesday night, NZ time.

She said a three-year investigation found Ireland granted such lavish tax breaks to Apple over many years that the multinational's effective corporate tax rate on its European profits dropped from one per cent in 2003 to a mere 0.0005 per cent in 2014.

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The Commission said "Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest".

The Irish government denied granting favourable fiscal treatment to the maker of the iPhone and other consumer electronics products, computer software and online services. "Ireland's position remains that the full amount of tax was paid in this case and no state aid was provided," the Irish statement said. "Ireland does not do deals with taxpayers."

Apple opened its factory in Cork in October 1980, and the company said it had since expanded its operations there from 60 to 6000 staff, becoming Ireland's largest taxpayer in the process.

The Irish finance minister, Michael Noonan, said he would seek approval from the Irish Cabinet to appeal the EU Commission's ruling to European courts.

"It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment," Noonan said. "Apple has been in Ireland since the 1980s and employs thousands of people in Cork."

In a statement, Apple chief executive Tim Cook said there was no basis to the European Commission's ruling, and the company would appeal.

Over 30 years, Apple had followed guidance from Irish tax authorities on how to comply with the law, "and we pay all the taxes we owe".

"At its root, the commission's case is not about how much Apple pays in taxes. It is about which government collects the money."

Cook accused the commission of trying to "rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process".

He said it was wrong to state the Irish government had given Apple a "special deal" on its 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 said the commission was trying to override Ireland's tax law, and infringing on its sovereignty in the process.

Cook added that Apple was committed to continuing its operations in Ireland, despite the ruling.</s>Ireland must recover up to 13 billion euros ($14.6 billion) in unpaid taxes from Apple, European officials said on Tuesday.

The tax ruling is the biggest the European Union has ever made regarding a single company, and it could spark a huge transatlantic row over how Europe treats U.S. companies.

Apple shares initially fell almost 3%, but then recovered most of their losses. The company will appeal the decision. It said the ruling upended the international tax system and would damage jobs and investment in Europe.

The European Commission, which administers EU law, said the Irish government had granted illegal state aid to Apple (AAPL, Tech30) by helping the tech giant to artificially lower its tax bill for more than 20 years.

"[EU] member states cannot give tax benefits to selected companies -- this is illegal under EU state aid rules," said Commissioner Margrethe Vestager, Europe's top antitrust official.

The United States fired back immediately, saying retroactive tax assessments by the EU were unfair.

"The Commission's actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU," a Treasury spokesperson said.

The decision amounted to "a transfer of revenue from U.S. taxpayers to the EU," White House press secretary Josh Earnest said. The Obama administration would fight for "American taxpayers and American businesses overseas when they're being treated unfairly," he added.

Related: How Apple paid just 0.005% tax on its global profits

Apple paid tax at 1%, or less, on profits attributed to its subsidiaries in Ireland, well below the 35% top rate of corporate tax in the United States and Ireland's 12.5% rate.

That prompted complaints by both European and U.S. lawmakers, who argued that Apple had been given an unfair advantage in exchange for creating jobs in Ireland. CEO Tim Cook was even called to testify on Apple's tax arrangements with Ireland before a Senate committee in 2013.

The bill for tax benefits, plus interest, covers 2003 to 2014. Apple has more than $231 billion in cash on its balance sheet to cushion the blow.

Cook said on Tuesday the ruling had "no basis in fact or in law," calling it "obvious targeting of Apple."

Apple had helped create and sustain more than 1.5 million jobs across Europe, follows the law and pays all the taxes it owes, he added.

"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," he wrote.

Ireland said it will appeal the decision, saying Apple paid what it owed. The country has one of the lowest corporate tax rates in Europe, which makes it an attractive place for global companies.

The Irish government is afraid companies would be less likely to invest in Ireland if its tax regime changes, which could cost the country thousands of jobs.

Apple is not the only American company that has recently found itself under scrutiny over its European tax affairs.

The European Commission ordered Starbucks and Fiat Chrysler to repay millions in taxes last October.

Starbucks (SBUX) has to pay back up to 30 million euros it saved thanks to a sweetheart tax deal with the Netherlands. Fiat Chrysler (FCAM) was ordered to repay a similar amount after a similar deal with Luxembourg.

Both companies have appealed the decisions.

Related: France going 'all the way' to collect tax from Google, McDonald's

The EU is also probing the tax arrangements of Amazon (AMZN, Tech30) and McDonald's (MCD). Google (GOOGL, Tech30) is under investigation over its taxes in France and a couple of other European countries.

The ruling against Apple's tax deal comes despite a stern warning from the U.S. Treasury Department last week that it would consider "potential responses" if the Commission doesn't change course.</s>European Union competition commissioner Margrethe Vestager has rejected accusations by Apple chief executive Tim Cook that the European Commission’s finding on tax against Apple was motivated by political concerns.

Speaking in Brussels on Thursday, Ms Vestager defended the independence of the commission’s competition division.

“I know what we are obliged to do and that is to take decisions that are independent, based on the treaty, the facts of the case and can be checked by the European courts,” she said.

She said state-aid cases had been taking place since 1958.

“We have a court practice that says quite clearly that state aid can come in many forms. In this case [it’s] as a tax benefit . . . The only politics of that is that we’re here to make sure the treaty is upheld and this is in the treaty.”

In an interview with RTÉ radio, Apple chief executive Tim Cook said it was clear the ruling was “coming from a political place” and was based on “no fact or law”. He denied that Apple had benefited from illegal state aid from Ireland through two tax rulings negotiated between the company and the Revenue in 1991 and 2007.

Tuesday’s finding against Apple was by far the largest ruling by the commission’s competition arm on a state aid matter related to tax. The previous state aid record was €1.3 billion in 2014.

Asked about Mr Cook’s assertion that the commission’s accusation that the company paid 0.005 per cent tax in 2014 was false, Ms Vestager said the commission had used figures supplied by Apple in US Senate hearings in 2013. She noted that tax rulings were by their nature confidential up to this point, adding that the commission’s investigation could take place only once the figures became public.

Ms Vestager said the commission was within its rights to pursue the state aid case as the issue concerned Europe. “The Apple case is about profits made on sales in Europe, profits that are recorded in Ireland, so obviously it is a question of taxes being paid within EU jurisdictions . . . So it is quite obviously a European matter and a matter for EU state aid rules.”

Ms Vestager said she believed the EU and US were “on the same page” when it came to the principles of tax avoidance, and would meet US treasury secretary Jack Lew later this month in Washington.

“It is very important to continue the dialogue. A global tax coalition is forming in order to have more transparency, more fairness,” she said.

Ms Vestager added that it now fell to Apple and the Irish authorities to decide when the full 130-page decision on the Apple state aid case would be published, urging both to co-operate.

“The ball is basically in the hands of Apple and Ireland. We have to clear the decision from things that are confidential and I do hope, because I can sense that there is an interest . . . that both Apple and Ireland will be as open and as co-operative as possible in order for us to be able to publish the decision as fast as possible.”
The European Union orders Apple to pay up to 13 billion euros in back taxes to Ireland. A three-year investigation by the EU's competition commissioner concludes that Apple received "illegal state aid" from Ireland, the EU order that Apple pay 13 billion euros ($14.5 billion), and, in addition, also interest and unpaid taxes.