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.
"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.
The record tax bill should not be a problem for Apple, which made a net profit of $53bn in the 2015 financial year.
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.
Europe's 'unfair' Apple tax ruling sparks US anger
Charles Schumer, one of the highest-ranking Democratic senators, said: "This is a cheap money grab by the European Commission, targeting US businesses and the US tax base. "
"By forcing their member states to retroactively impose taxes on US companies, the EU is unfairly undermining our ability to compete economically in Europe while grabbing tax revenues that should go toward investment here in the United States," he said.
Yeah. I'm sure US tax authorities don't require domestic US firms to pay unpaid taxes. Tell me by which natural right US firms are allowed to illegally circumvent European taxes aided by Ireland if it profits US?
Commission's press release
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 an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a "head office". The Commission's assessment showed that these "head offices" existed only on paper and could not have generated such profits. These profits allocated to the "head offices" were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.
This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission's first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.
In fact, the tax treatment in Ireland enabled Apple to avoid taxation 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. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.
Boldface highlight mine.