Ireland must recover illegal state aid of up to €13bn from computer giant Apple going back to 2003, the European Commission ruled today.

Announcing its decision following a three year investigation, the Commission concluded that Ireland granted undue tax benefits to the US company, allowing it to pay substantially less than other businesses - in effect a corporate tax rate of no more than 1%.

Ireland's finance minister, Michael Noonan, said he "profoundly" disagreed with the decision and had no option but to seek cabinet approval to appeal. Apple also promised to appeal, accusing the Commission of attempting to "rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process". It said the decision would have "a profound and harmful effect on investment and job creation in Europe".

In its decision the Commission found that tax rulings issued by Ireland to Apple endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group which "did not correspond to economic reality", as almost all sales profits recorded by the two companies were internally attributed to a "head office" which the Commission's assessment showed existed only on paper and could not have generated such profits.

This "enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU single market", due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold. "If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland", the Commission stated.

The Commission can order recovery of illegal state aid for a 10 year period preceding the Commission's first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13bn, plus interest.

Mr Noonan said in a statement that an appeal was "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".