According to an European Commission ruling, Ireland should recover up to €13 billion ($14.5 billion) from Apple in back taxes.

After a three-year investigation, the Commission has concluded that Apple’s Irish tax benefits are illegal.

It said Ireland enabled Apple 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.

Commissioner Margrethe Vestager 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.”

The standard rate of Irish corporate tax is 12.5%. The European Commission’s investigation concluded that Apple had effectively paid 1% tax on its European profits in 2003 and about 0.005% in 2014.

Margrethe Vestager said that the tax agreement reached between Ireland and Apple meant that the company’s taxable profits “did not correspond to economic reality”.

Apple said the decision would be harmful for jobs.

The company said in a statement: “The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process.”

“The Commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe.

“Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal and we are confident the decision will be overturned.”

The Irish government held a similar view with finance minister Michael Noonan saying in a statement: “I disagree profoundly with the Commission.

“The decision leaves me with no choice but to seek cabinet approval to appeal. This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.”

The US Treasury, which said last week that the European Commission was in danger of becoming a “supranational tax authority”, said the latest ruling could “undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU”.