Brett Molina

USA TODAY

On Tuesday, The European Union ruled Apple must pay Ireland $14.5 billion in back taxes for receiving illegal tax breaks in the country over several years.

But what is it Apple did to generate such a massive tax bill? And how will this impact its business? Let's break down the five big questions tied to this ruling.

What is the EU claiming Apple did?

The EU says Apple is paying far less in taxes in Ireland, a country with an already low corporate tax rate, than it should have due to special deals Ireland made to generate jobs.

Apple paid just 0.005% on European profits in 2014, says the EU, rather than Ireland's already low 12.5% corporate rate. What's more, it paid that super-low tax rate on income from sales made outside Ireland, in the EU and elsewhere.

The EU alleges Apple was able to avoid higher taxes due to Irish tax deals that let Apple set up two Ireland-based companies: Apple Sales International and Apple Operations Europe. Under this structure, consumers in Europe, the Middle East and Africa bought products from Apple Sales International.

Apple must pay up to $14.5B in back taxes to Ireland

Here's where it gets interesting. Irish tax rulings let Apple allocate most of Apple Sales International's profits to a "head office" that was not based in Ireland, or any other country, so wasn't subject to Irish taxes, said the EU. Apple ended up paying Irish taxes on a fraction of the profits from Apple Sales International. The EU says this "head office" had no employees, making it unlikely it could have recorded $22 billion in profits in one year. Apple Operations Europe boasted a similar setup, says the EU.

As a result, only a fraction of Apple's sales from the EU were taxed in Ireland, lowering the tax rate Apple paid to under 1%.

Meanwhile, Apple's Irish subsidiaries made big annual payments to the parent company's R&D funds in the U.S.

The EU considers this "illegal state aid" because it gave Apple an unfair advantage over other companies.

What does Apple think of all this?

In a letter to customers, Apple CEO Tim Cook says he's confident the EU ruling will be reversed in the appeals process. Both Apple and Ireland plan to appeal the decision.

“This claim has no basis in fact or in law,” says Cook on the EU's accusations. “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.”

Cook also says nearly all research and development for Apple takes place in California, with “the vast majority” of profits taxed in the U.S.

“The Commission’s move is unprecedented and it has serious, wide-reaching implications,” says Cook. “It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been.”

Cook also points out Apple is the largest taxpayer in the U.S., Ireland and globally.

Ireland is also disputing the EU ruling. Irish Finance Minister Michael Noonan said in a statement Tuesday Apple paid its taxes in full and did not receive special treatment. “It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment.”

Has the U.S. weighed in?

In a statement. the U.S. Treasury Department says it is “disappointed” in the EU ruling, and claims it could impact foreign investment in Ireland and the rest of Europe. “We believe that retroactive tax assessments by the Commission are unfair, contrary to well-established legal principles, and call into question the tax rules of individual Member States,” reads a statement from a Treasury spokesperson.

How will this impact Apple?

It certainly won't happen immediately. In an investor explainer, Apple says it doesn't expect any restatement of previous financial results or changes to its near-term future results. Apple says its cash balance will remain unaffected, but the company does “anticipate we will place some amount of cash in an escrow account.” Also important: the appeals process in this case could take several years.

Even if it were to pay the entire $14.5 billion, a vast sum that could wipe out most big companies' profits, that would amount to just 6% of its cash and investments as of June.

Should Apple customers worry?

Right now, the only thing Apple customers should worry about is whether they've updated their iPhone's operating system to the latest version to fix a security flaw.

Follow Brett Molina on Twitter: @brettmolina23.