Welcome to a new era of trying to force multinationals like Apple to pay their 'fair share' in taxes.

An era where governments - who have long enabled and assisted multinationals with special deals that allow them to legally pay less taxes - are now changing tune and battling each other about which nation has the right to tax.

Apple has been ordered to pay up to €13 billion ($19 billion) in back taxes, plus interest, to Ireland after the European Commission found the software giant had received "illegal state aid".

But this is just the beginning, governments around the world are closely watching this decision, and may now decide they also have the right to challenge old rulings.

$8 billion revenue becomes a $85m Australian tax bill

Locally, it's worth noting that despite the ATO's recent tougher approach towards multinationals, for over a decade the ATO had granted Apple tax rulings in the company's favour. Apple made this clear in its statement to last year's Senate inquiry into corporate tax avoidance.

Apple - whose $85 million tax bill is a fraction of its almost $8 billion revenue - in 2015 said the Tax Office in removed Advanced Pricing Agreements (APAs) with the company.

APAs are an agreement between the agency and the company about future taxes they are expected to pay and based on what terms.

Technology giants like Apple have used such agreements with governments all over the world for decades. It has allowed tech giants to legally shift profits to lower tax jurisdictions to avoid paying tax locally.

But now the government revenues have dried up, those special deals are off the table, and companies are being made to pay up.

The ATO issued a statement on Wednesday afternoon saying that while "Australia's tax system is not immediately comparable with European Union nations" the federal government's tougher anti-avoidance laws are "designed to counter the erosion of the Australian tax base".

This is aimed at stopping "multinational entities using artificial and contrived arrangements to avoid the attribution of profits to a permanent establishment in Australia".

It noted that while it was "generally acceptable" for nation's to have incentives for companies to invest and do business there, it was "unacceptable"  to "transfer mis-price to artificially boost profits in lower taxed countries". "This is even more critical where countries provide 'tax holidays' to particular companies or industries," its statement said.

The ATO also noted that "APA's are only entered into where the ATO has a constructive working relationship with the company based on full disclosure", and that APA's are not simply rolled forward, but "regularly reviewed to ensure that they remain relevant and appropriate to the business actually being carried on in Australia".

How it all began

Brussels launched an inquiry into Apple's tax arrangements in Ireland in 2014, following a series of other cases targeting major US corporations.

The EU's investigation concluded that two tax rulings issued by Ireland to Apple have "substantially and artificially" lowered the tax paid by Apple in Ireland since 1991 and did not "correspond to economic reality" and has ordered reland to recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014.

Commissioner Margrethe Vestager, in charge of competition policy, said in a statement that this "selective treatment" had allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014."

The move has angered Washington, which according to an Associated Press report, says the "Obama administration is concerned that American taxpayers will ultimately bear the brunt of the European Union's decision requiring Apple to pay billions of dollars in back taxes".

At issue is where companies should be attributing profits. The EU says Apple's decision to record all sales in Ireland rather than in the countries where the products were sold is wrong. 

'No factual or economic justification'

It is true that Apple and other US firms leave much of their foreign earnings overseas to avoid higher US tax rates.

But now everyone wants a share of the pie. Treasury officials have said they're working to get companies to repatriate those funds.

Source: European Commission

What that means is that previous rulings issued by sovereign governments - in this case, taxable profits of Apple sales International and Apple operations Europe in Ireland were determined by a tax ruling granted by Ireland - will continue to be disputed.

"The role of EU state aid control is to ensure member states do not give selected companies a better tax treatment than others, via tax rulings or otherwise," the EU said. It added Apple's "head offices" existed only on paper and could not have generated such profits.

"These profits allocated to the 'head offices' were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force," it said. This, it says, "enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU single market".

Therefore, only a small percentage of Apple sales International's profits were taxed in Ireland, and the rest was taxed nowhere.

This is artificial, the EU says, with "no factual or economic justification".

'It's not about how much Apple pays in taxes'

Apple and US Treasury disagree. They will appeal. As Apple's Tim Cook said in an open letter: "At its root, the Commission's case is not about how much Apple pays in taxes. It is about which government collects the money."

Apple and the US government say it should be in the USA. "In Apple's case, nearly all of our research and development takes place in California, so the vast majority of our profits are taxed in the United States."

Cook says "beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission's theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed."

In some ways, Cook, is right. If the EU thinks more money from other multinationals should be counted in Ireland, we're in for a long fight.