That internal company practice, as well as two favorable Irish tax rulings in 1991 and 2007, "enabled Apple to avoid taxation on nearly all profits generated by the sale of Apple products in the entire EU single market", according to the European Commission. As a result of the "selective treatment" that Apple received with regards to tax, it must now repay £11bn to Ireland.
Last week the European Commission denied it was targeting United States companies in particular and said that EU rules do not allow national tax authorities to give tax breaks to some companies that are not available to others. Under current European Union rules, member countries can not give aid that grants companies or sectors an unfair advantage.
Ireland and Apple both said they disagreed with the record penalty and would appeal against it. "This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold", the report said. He said the Commission wanted to retroactively change the rules to collect more money in its own region.
For its part Apple's accused the European Commission of threatening future investment and job creation in Europe and says it's confident of overturning the ruling in the European courts.
Ireland has no problem with this set up - many companies take advantage of its tax laws to pay next-to-nothing in taxes despite making huge profits, including Facebook and Google. Apple Ireland must now pay back the $14.5 billion illegal aid.
"The European Commission has concluded that Ireland granted undue tax benefits of up to 13 billion Euros to Apple".
The company's CEO Tim Cook published a message to the Apple community in Europe explaining the situation and pointing out that his company did not receive special treatment in Ireland.
"This is a significant ruling that could cause multinationals to revisit the tax implications of their current structure", said Matt Larson, an analyst at Bloomberg Intelligence.
"The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the global tax system in the process". It said the ruling upended the worldwide tax system and would damage jobs and investment in Europe.
The fine is 40 times bigger than the last largest fine the European Commission issued. The company will appeal the decision. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been.
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 US companies.
Apple and the Irish government immediately said they would appeal against the European Commission ruling, while the US Treasury said it could undermine its economic partnership with the EU.