How did Apple wind up paying such a low tax rate in Ireland for so long?
The answer is a tax structure that the world's most valuable company made with the country on the edge of Europe.
Apple created two subsidiary entities in Ireland — Apple Sales International and Apple Operations Europe — that effectively own most of the company's intellectual property.
Those companies license that IP to other global Apple subsidiaries, and earn income from those licensing arrangements.
So when an Apple iPhone is sold in China, for example, Apple's Chinese subsidiary must pay the Irish company to reflect the use of the Irish companies' intellectual property. Only Apple knows what percentage of that iPhone sale is subject to those intellectual property licensing fees, said Robert Willens, a tax consultant and Columbia Business School professor of taxation.
But the result is that profit earned on the sale in China is shifted to the Irish subsidiary, said Willens.
This is when Apple's agreement with the Irish government — which the European Commission is taking issue with — kicks in.