BRUSSELS (AP) — The European Union says Ireland has given illegal tax benefits worth up to 13 billion euros ($14.5 billion) to Apple Inc. and must now recover the unpaid back taxes from the U.S. technology company, plus interest. 
 
 EU Competition Commission Margrethe Vestager said Tuesday: "Member states cannot give tax benefits to selected companies_this is illegal under EU state aid rules." 
 
 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 1 percent in 2003 to a mere 0.0005 percent in 2014. 
 
 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 euros ($14.5 billion), plus interest." ||||| Media playback is unsupported on your device Media caption Ms Vestager said the Irish tax system "allowed profits to be attributed to a head office that only existed on paper." 
 
 Ireland should recover up to €13bn (£11bn) from Apple in back taxes, the European Commission has ruled. 
 
 After a three-year investigation, it has concluded that the US firm's Irish tax benefits are illegal. 
 
 The Commission said Ireland enabled the company to pay substantially less than other businesses, in effect paying a corporate tax rate of no more than 1%. 
 
 Ireland and Apple both said they disagreed with the record penalty and would appeal against it. 
 
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 "Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules," said Commissioner Margrethe Vestager. 
 
 "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," she added. 
 
 The standard rate of Irish corporate tax is 12.5%. The Commissions's investigation concluded that Apple had effectively paid 1% tax on its European profits in 2003 and about 0.005% in 2014. 
 
 Ms Vestager said that the tax agreement reached between Ireland and Apple meant that the company's taxable profits "did not correspond to economic reality". 
 
 'Profound and harmful effect' 
 
 Apple said the decision would be harmful for jobs. 
 
 "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 company said in a statement. 
 
 "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." 
 
 Media playback is unsupported on your device Media caption Nobel Prize winner Joseph Stiglitz says the EU is telling big corporations: "We can get you" 
 
 The Irish government held a similar view. 
 
 "I disagree profoundly with the Commission," said Ireland's finance minister, Michael Noonan, 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." 
 
 The record tax bill should not be a problem for Apple, which made a net profit of $53bn in the 2015 financial year. 
 
 'Undermine investment' 
 
 "Apple has been enjoying a river of free cash flow and while the ruling may not been too much short-term, investors will have to assess whether a higher tax bill will have any impact on profits after tax," said Neil Wilson, market analyst at ETX Capital. 
 
 The US Treasury, which said last week that the European Commission was in danger of becoming a "supranational tax authority", said the latest ruling could "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," a US Treasury spokesman said. 
 
 Apple is not the only company that has been targeted for securing favourable tax deals in the European Union. 
 
 Last year, the commission told the Netherlands to recover as much as €30m (£25.6m) from Starbucks, while Luxembourg was ordered to claw back a similar amount from Fiat. 
 
 Apple and Ireland €13bn demanded in back taxes. Equal to: ALL of Ireland's healthcare budget 
 
 66% of its social welfare bill 
 
 15 million iPhones 
 
 27% of Apple's 2015 profit Getty 
 
 Analysis: Dominic O'Connell, Today business presenter 
 
 The current focus is on the size of the bill, but there are even larger issues at stake, including one fundamental question - who really runs the world, governments or giant corporations? 
 
 At present, it is difficult to tell. Individual governments appear impotent in their attempts to apply their tax laws to multinationals like Apple. They have systems designed to deal with the movement and sale of physical goods, systems that are useless when companies derive their profits from the sale of services and the exploitation of intellectual property. 
 
 In Apple's case, 90% of its foreign profits are legally channelled to Ireland, and then to subsidiaries which have no tax residence. At the same time, countries can scarcely afford not to co-operate when Apple comes calling; it has a stock market value of $600bn, and the attraction of the jobs it can create and the extra inward investment its favours can bring are too much for most politicians to resist. 
 
 There is an echo here of the tycoons of the early 20th Century who bestrode America. Andrew Carnegie, Cornelius Vanderbilt and John Rockefeller were judged so powerful that they were almost above the law, something that successive US administrations sought to curb. 
 
 The European Commission's attempt to bring Apple to heel is on the surface about tax, but in the end about the power of the multinational and the power of the state. There is more to come; Margrethe Vestager, the Danish commissioner who is leading the charge against Apple, is warming up to take on Google. 
 
 Europe versus the giants of corporate America will be a battle royale, and one that will run and run. ||||| European commission says Apple got illegal help with tax breaks but CEO Tim Cook says ruling threatens investment in Europe 
 
 Apple has warned that future investment by multinationals in Europe could be hit after it was ordered to pay a record-breaking €13bn (£11bn) in back taxes to Ireland. 
 
 The world’s largest company was presented with the huge bill after the European commission ruled that a sweetheart tax deal between Apple and the Irish tax authorities amounted to illegal state aid. 
 
 The commission said the deal allowed Apple to pay a maximum tax rate of just 1%. In 2014, the tech firm paid tax at just 0.005%. The usual rate of corporation tax in Ireland is 12.5%. 
 
 “Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” said the European competition commissioner, Margrethe Vestager, whose investigation of Apple’s complex tax dealings has taken three years. 
 
 Vestager’s ruling prompted an angry response from Apple and from Ireland and is likely to spark a political row between the US and the EU. The US Treasury said the ruling threatened to damage “the important spirit of economic partnership between the US and the EU”. 
 
 In a letter to customers, Apple’s chief executive, Tim Cook, claimed the ruling could deal a blow to big companies investing in Europe: “Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.” 
 
 The commission said Ireland’s tax arrangements with Apple between 1991 and 2015 had allowed the US company to attribute sales to a “head office” that only existed on paper and could not have generated such profits. 
 
 The result was that Apple avoided tax on almost all the profit generated from its multi-billion euro sales of iPhones and other products across the EU’s single market. It booked the profits in Ireland rather than the country in which the product was sold. 
 
 Corporation tax rates in Europe Corporation tax rates in Europe. 
 
 Apple and Ireland said they intend to appeal against the ruling. 
 
 The figure of €13bn plus interest is 40 times the previous record for such a case and the equivalent of the annual budget for Ireland’s health service. Irish campaigners called for the windfall to be invested in public housing. 
 
 The taxable profits of Apple Sales International and Apple Operations Europe did not correspond to economic reality, the commission said. 
 
 Vestager 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.” 
 
 
 
 Vestager suggested other countries, including the US, might now examine how Apple did business within their borders. These other jurisdictions might then claim a share of the unpaid tax from Apple for the same period. This would reduce the bill owed to Ireland. 
 
 Facebook Twitter Pinterest Tim Cook, Apple CEO. Photograph: Justin Sullivan/Getty Images 
 
 Tim Cook, Apple’s chief executive, said the commission was rewriting Apple’s record in Ireland, overriding Irish law and disrupting the international tax system. He said Apple chose the Irish city of Cork as its European base 30 years ago and had expanded from 60 workers to almost 6,000 in Ireland. 
 
 He said Apple would appeal and that he was confident of winning. 
 
 Cook said: “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.” 
 
 The commission’s decision is a rebuff to US efforts to persuade it to drop the case after warnings of retaliation from Washington. 
 
 Apple, which changed its tax arrangements with Ireland in 2015, should easily be able to pay the huge tax bill because it has a cash mountain of more than $230bn (£176bn) of cash and securities, mostly held outside the US. The tech group keeps the money outside the US because it would be forced to pay US tax charges if it repatriated the money. 
 
 The €13bn figure covers only the 10 years before the commission first requested information in 2013. The commission, which does not have the authority to go back any further, said it was up to Ireland to collect the tax from Apple. 
 
 The Irish government, however, wants the ruling reversed because it wants to preserve its status as a low-tax base for overseas companies. 
 
 Ireland’s finance minister, Michael Noonan, said Dublin would appeal against the ruling. He said: “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.” 
 
 A cabinet meeting will be held in Dublin on Wednesday to discuss the fallout from the ruling. At the heart of the Fine Gael-led administration’s objections is that it would cause Ireland reputational damage in the eyes of other mainly US multinationals thinking of establishing their European base in the Republic. 
 
 Fine Gael, the main opposition party Fianna Fáil, and a host of independent deputies serving as ministers in the coalition government support the low-tax regime for multinationals because it has created hundreds of thousands of jobs. 
 
 A tunnel to Wales or a gallery full of Gauguins: how Ireland could spend Apple’s money Read more 
 
 Richard Murphy, a tax campaigner and a professor in international political economy at City University in London, said: “This is a great day for the sovereignty of the EU’s nations when it comes to tax. They will now be able to choose their own tax policies knowing another state should not be consciously undermining them when doing so. The Irish state has for too long been committed to tax abuse, unfair competition and secrecy, all of which are designed to undermine fair competition and increase inequality.” 
 
 
 
 Prof Louise Gracia of Warwick University business school said: “This ruling is a serious attempt at curtailing the power large multinationals have in avoiding their tax liabilities, and sends a warning to countries that facilitate hard-edged corporate tax minimisation strategies.” 
 
 She added: “It also shines a spotlight on the paltry levels of corporate tax that large multinationals are actually paying. Even if we accept the job and wealth creation arguments put forward by multinationals as mitigation against tax liability, this has to be within reason.” 
 
 Toby Quantrill, Christian Aid’s principal adviser on economic justice, said: “The staggering amount of money at stake here suggests that millions of citizens are paying a painfully high price for multinationals’ cosy tax deals with certain governments. 
 
 “This is not a one-off situation – it is part of a damaging race to the bottom in which governments are competing on who can offer multinationals the lowest tax bill. It’s time to get multinationals’ tax affairs out in the open, so we can all see how much they are actually contributing to the rest of society.” 
 
 In the US Peter Kenny, senior market strategist at Global Markets Advisory Group, said it was not yet clear which side would ultimately prevail, but that the ruling was a watershed moment. “There’s no telling whether the verdict will stand on appeal, but we know that the landscape is changing for US corporations in the EU.” 
 
 He described Vestager’s ruling as “just the tip of the spear – an enormously important ruling” because US-based companies “have traditionally used the EU as a way of circumventing a higher US corporate tax code.” 
 
 Apple’s share price, however, was largely unmoved. In a note to investors, Gene Munster, analyst at Piper Jaffray, said the €13bn potential bill was not a big deal for the huge company. “While the penalty is large in absolute terms, it represents a small portion of AAPL’s [Apple’s] overall valuation.” 
 
 It is not yet clear which side will be backed by either of the 2016 presidential candidates. Republican Donald Trump has said he would force US companies, Apple in particular, to move manufacturing jobs within the nation’s own borders, rather than allowing them to seek cheaper labour overseas. He has also said he would lower the US corporate tax rate. 
 
 His Democratic rival, Hillary Clinton, has also hinted that she might lower the corporate tax rate. She has closer ties to Apple than Trump. Cook held a fundraiser for Clinton on 24 August. ||||| 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.
– Apple got some bad news out of Europe on Tuesday in the form of a massive tax bill. The European Union says Ireland has given illegal tax benefits worth up to $14.5 billion to the company and must now recover the money, plus interest. The penalty is unprecedented—Reuters reports that it's 40 times bigger than any other such fine levied by the European Commission. "Member states cannot give tax benefits to selected companies—this is illegal under EU state aid rules," said EU Competition Commissioner Margrethe Vestager, per the AP. She said a three-year investigation found Ireland granted such lavish tax breaks to Apple over many years that the company's effective corporate tax rate on its European profits dropped from 1% in 2003 to practically nothing—a mere 0.0005% in 2014. Both Apple and Ireland say they will appeal. CEO Tim Cook has previously called the tax inquiry "political crap," notes the Guardian, while Ireland says it threatens to torpedo its successful strategy of using low taxes to woo international business. "Apple follows the law and pays all of the taxes we owe wherever we operate," said the company in a statement, per the BBC. "We ... are confident the decision will be overturned."