Apple CEO Tim Cook. REUTERS/Stephen Lam Apple could be asked to pay back-taxes of over $8 billion after a preliminary finding by the European Commission (EC) that its tax deals with the Irish state breached rules over state aid. If Ireland is found to have breached state aid rules, Apple could be facing a bill of almost $8 billion plus interest.

In its report released today the EC found that tax deals struck in 1990 and 2007 "confer an advantage on Apple" that are not be compatible with rules covering the treatment of companies within the European single market.

Here is the key parts of the decision (emphasis added):

In the light of the foregoing considerations, the Commission’s preliminary view is that the tax ruling of 1990 (effectively agreed in 1991) and of 2007 in favour of the Apple group constitute State aid according to Article 107(1) TFEU. The Commission has doubts about the compatibility of such State aid with the internal market.

...

The Commission wishes to remind Ireland that Article 108(3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw your attention to Article 14 of Council Regulation (EC) No 659/199935, which provides that all unlawful aid may be recovered from the recipient.

Ireland corporate tax rate is already low by international standards, at 12.5%. However, according to a report from the US Senate last year on Apple's tax practices the deals with Ireland "facilitated the shift of $74 billion in worldwide sales income away from the United States to Ireland where Apple has negotiated a tax rate of less than 2%".

Although the commission can fine companies up to 10% of revenues, which could leave the company facing a bill of some $17 billion, the terms of the legislation suggest that it would seek the "recovery of the aid" rather than a punitive figure.

European Union Competition Commissioner Joaquin Almunia REUTERS/Francois Lenoir Here's some back-of-the-envelope math: Assuming a 2% corporate income tax (on the $74 billion identified by the Senate), Apple will have paid somewhere in the region of $1.48 billion in Ireland. This compares to $9.375 billion that they would have handed over had the company had been on the 12.5% tax rate, suggesting the subsidy could have been in the region of $8 billion ($9.375 billion - $1.48 billion = roughly $8 billion).

The Commission also has the also has the power to fine Ireland up to €1 billion ($1.26 billion). Small wonder then that the Irish Department of Finance strongly deny any wrongdoing. It issued a statement on Monday:

Ireland is confident that there is no breach of state aid rules in this case and has already issued a formal response to the Commission earlier this month, addressing in detail the concerns and some misunderstandings contained in the opening decision.

The EC's move can be seen as part of a broader push to tackle aggressive tax practices. Earlier this month the Organisation for Economic Co-operation and Development (OECD) unveiled a historic plan to crack down on corporate tax avoidance.

Even though Apple denied to Business Insider that its tax arrangements in Ireland were illegal it did concede that "corporate tax reform is badly needed."

