The final details of the European Commission's decision on Apple is full of complexity and obscure points of tax and competition law. But the essence of this is simple.

The European Commission is arguing that the profits which Apple earned outside the US between the years 2004 and 2014 should have been taxed in Ireland. The Revenue Commissioners here had decided – on the basis, Ireland says, of international practice – that Apple should pay corporation tax in Ireland only relating to what it sold in the Irish market.

The difference between these two numbers is very large – some €13 billion on the European Commission estimates – and hence the demands from the commission that the Government collects this amount in tax. Apple’s international accounting practices meant that in the period under review it generally paid tax of less than 2 per cent on profits earned outside the US, or even less in some years. The commission has said that Irish tax should have been applied to much of these profits.

The scale of the finding means that the whole issue of multinational tax will be front and centre again in international business debate, and this is bound to spark off serious tensions between the European Commission and the US, which will be furious at what has happened.

Ireland is caught right in the middle. It is a decision which will involve significant collateral damage for Ireland, which has always claimed to have a transparent and legally based tax system. The Revenue is merely meant to apply the rules in collecting tax here.

Rules

The European Commission has found that it offered Apple a “selective advantage” by the way it applied the rules to the US multinational – in other words it gave it too generous a deal, and one which was not on offer to other companies.

The Government and Revenue strongly deny this and Ireland will take the fight to the European courts. However, the scale and high profile of the judgement means Ireland – and the IDA – will have a fight on their hands.

It remains to be seen if the European Commission now targets other Irish-based companies. And while the Irish tax system has changed in recent years, the decision will create some uncertainty about the tax structure on offer to inward investors, even if the Government will loudly argue that this is not the case. This will not help Ireland’s drive to attract foreign direct investment – or Europe’s. The commission has done damage which will not be easily undone, though Apple has underlined its commitment to Ireland. The Government will also take some comfort in a statement in the Commission release that “this decision does not call into question Ireland’s general tax system or its corporate tax rate.” The aim in Ireland will be to ringfence this.

The amount of money involved will put the Government on the defensive, both at home and internationally. The Government says it "profoundly" disagrees with the decision and a Cabinet meeting will be held on Wednesday at which Minister for Finance Michael Noonan will seek approval to appeal the case to the European courts. Apple, now a party to the case after the decision has been reached, is also expected to appeal.

One of the unusual factors here is that Margrethe Vestager, the EU Competition Commissioner, has said that it is possible that all the tax would not accrue to Ireland. Other European countries could stake a claim to it, she said. Or more tax could be paid by Apple in the US. Given that this is a binding judgement, this uncertainty about where the tax is due seems unusual.

Apple established its European headquarters in Ireland in the early 1980s and for many years paid no tax on sales outside Ireland under the old export sales relief rule.

This was abolished on April 5th, 1990, to be replaced by the 10 per cent corporation tax rate, since raised to 12.5 per cent. And so Apple entered into talks with the Revenue about how tax would be applied to its operations here, culminating in a so-called tax ruling, a non-binding letter given by the Revenue outlining the principles it would use to tax Apple here.

It is here that the dispute lies. The Government says Apple did not get a special deal. The commission disagrees and holds that the two tax rulings – one in 1991 and one in 2007 – represents illegal state aid from the country to the company. The demand that Ireland collect the tax involved follows as the legal remedy to recoup this “illegal” aid to Apple.

Case

Ireland’s case will be that it offered Apple no favourable deal and that the European Commission has taken an extraordinary use of state aid rules without any proper legal basis. The view in Dublin is that this is something of a power grab by the commission, which has seen the OECD emerge as the main international body in the tax arena.

The Department of Finance also believes that the commission has moved away from taxing economic activity where the " substance" of it takes place – as favoured by the OECD. It points out that much of the money moving through Apple's Irish subsidiaries related to products such as the iPhone, on which key research and development work was undertaken in the US, and sales of which were greatest in big European markets. The commission was, Ireland will contend, operating on the basis that "if it is not taxed elsewhere, it should be taxed in Ireland".

The commission’s ruling will now be for the European courts to decide, though Irish officials say it goes against established international tax practice. Ireland has also moved to change some of the tax structures in question.

Apple used the double Irish structure – with a company registered here but not tax resident in Ireland. In fact one of its key companies – as a US Senate hearing discovered – was not tax resident anywhere. A change in Irish tax rules means this loophole allowing the registering of a company here with no tax residency anywhere has been closed.

And the whole double Irish structure is being phased out by 2020. In hindsight, it was the right move to make these changes in 2014, but it will not stop Ireland being the butt of huge international criticism.

Ireland’s case will be that it collected all the tax which Apple declared and was due here – and it was not its job to police its worldwide structures. The commission argues that the Irish Revenue authorities, influenced by jobs in Ireland, gave Apple a favourable deal.

Law

A lot of this comes down to complex tax law on transfer pricing – the way big companies allocate costs between their subsidiaries, vital in the case of Apple where a huge intellectual property or IP charge was levied on sales across Europe, pulling money back into Irish registered subsidiaries. This was a key part of the chain through which Apple has now built up a cash pile of over $200 billion held outside the US – if the money is returned to the US, Apple would be subject to US tax on it.

Ireland will now be forced to raise a tax demand on Apple and the money will, as Father Ted put it, be “resting in our account” – or some kind of escrow half way house – as the case wends its way through the European courts. With Apple also certain to appeal, Irish officials say that “the idea that we could ever get our hands on this cash could be seen as fanciful”. This will not stop a huge political debate at home.

However, such is the scale of the money involved that this is bound to have significant political implications internationally, too. The US reaction will be furious – and retaliatory measures may be threatened – and Ireland’s competitors for foreign direct investment elsewhere in Europe will make hay.

This one will run and run.