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| Apple CEO Tim Cook. |
The European Union has never ordered a company to pay this much before, with Tuesday's decision smashing the €1.4 billion (£1.2 billion; $1.6 billion) levied against the French energy giant EDF in 2015.
Margrethe Vestager, the EU's competition commissioner, announced the figure at a European Commission press conference.
"Member states cannot give tax benefits to selected companies — this is illegal under EU state aid rules," Vestager said in a press release ahead of her speech. "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% on its European profits in 2003 down to 0.005 per cent in 2014."
Apple said the decision would affect how much it invests in Europe and how many people it employs in the region.
An Apple representative 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 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."
Ireland's finance minister, Michael Noonan, said in a statement: "I disagree profoundly with the commission's decision." He added: "The decision leaves me with no choice but to seek Cabinet approval to appeal the decision before the European courts."
Apple, which is the world's most valuable company, saw its share price fall 1.6% in premarket trading after the decision was announced, according to Reuters.
The European Commission started to look into Apple's Irish tax rate in 2014, so the decision is the culmination of a three-year investigation.
The commission concluded that Apple received "illegal state aid" from Ireland — essentially a sweetheart deal that allowed the computer maker to unfairly reduce its tax bill in a way not available to other companies.
At the press conference, Vestager highlighted that Apple's so-called head office had no employees, no premises, and no real business. "This was possible under Irish law, which until 2013 allowed for so-called stateless companies," she said.
She added that in 2011, for every million €1 billion (£852 million; $1.11 billion) made in profits, Apple paid just €500 (£427; $558), extending to just €50 (£42; $55) in 2014.
Both the Irish government and Apple have said they plan to appeal the ruling, which could push back the final decision by five or six years, according to the Irish Independent.
The ruling is likely to trigger one of the world's biggest tax disputes and a political showdown between Europe and the US.
The Obama administration has been watching the case with concern, and it had warned the commission of potential consequences if it ruled against Apple and Ireland.
The US Treasury said in a white paper published Wednesday that it "continues to consider potential responses should the commission continue its present course," and it accused the Brussels investigation of being "supranational."
Apple CEO Tim Cook has criticised the international tax system as "not good," and he previously vowed to appeal the decision if he felt that Apple didn't "get a fair hearing."
"Let me explain what goes on with our international taxes," Cook told The Washington Post. "The money that's in Ireland ... is money that is subject to US taxes. The tax law right now says we can keep that in Ireland or we can bring it back.
"It's important for everyone to understand that the allegation made in the EU is that Ireland gave us a special deal. Ireland denies that," Cook said. "The basic controversy at the root of this is, people really aren't arguing that Apple should pay more taxes. They're arguing about who they should be paid to. And so there's a tug of war going on between the countries of how you allocate profits."
Business Insider
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