It has been more than 200 years since the U.S. waged war with a European power over taxes. But now a more modern transatlantic struggle is brewing over much the same issue—this time with enormous sums in play. In August, European Union officials ordered Apple (AAPL) to pay a whopping $14.6 billion in back taxes to Ireland, where it stations key parts of its business. Stunned at the giant fine, the U.S. Treasury told EU officials the ruling would have a “chilling effect” on trade and alleged that Brussels wanted to inflict pain on the largest U.S. company by market cap.
But this battle extends far beyond Apple. At stake is what happens to about $2 trillion that U.S. companies are estimated to have stashed abroad, out of reach of the U.S.’s 35% corporate tax. With governments vowing to crack down on tax havens, the scramble to decide where such levies might go has begun, and several EU countries, including France, Italy, and Germany, believe Apple owes them, too, a slice of those revenues.
No matter how the fight plays out, Apple’s fine may signal the end of decades of U.S. companies quietly cutting sweetheart tax deals with smaller EU countries. For years the arrangement suited both sides, with cash-strapped governments scheming to create jobs, and U.S. companies eager to boost profits. “For so long the attitude has been, ‘Whatever our lawyers can get away with is okay,’ ” says Markus Meinzer, director of the London-based Tax Justice Network. That’s no longer likely to be the case, he says, calling the ruling “historic and tide turning.”
It is no wonder, then, that Irish officials are appealing the Apple fine, even though the money it could claim represents more than 5% of Ireland’s GDP: Its economy depends heavily on luring foreign companies with mammoth tax exemptions.
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That economic model might now face terminal collapse—not only in Ireland, but also across Europe. Although the cut-rate tax deals are legal, the no-nonsense, stunningly effective EU competition commissioner, Margrethe Vestager, has launched multiple cases, arguing that multinationals have overwhelmed competitors by shaving billions off their taxes—something smaller businesses have too little clout to negotiate. Last year she ordered Starbucks (SBUX) to pay $35 million in back taxes to the Netherlands, where it had its EU headquarters until 2014. And she ruled against Fiat Chrysler Automobiles (FCAU) for its dealings in the tiny duchy of Luxembourg, famous for its low taxes. Amazon (AMZN) and McDonald’s (MCD) could face similar punishment.
Taxes aren’t the only issue over which the EU and American business are at war. Google (GOOGL) faces three antitrust investigations into whether it abused its market dominance. Facebook (FB) may also be a target over its use of WhatsApp data. And Microsoft’s (MSFT) plans to buy LinkedIn will need EU approval too. In theory, Vestager could pick hundreds more businesses to probe, and she has made it clear that iconic companies cannot easily win her over. “A case is a case,” she told Fortune last year.
The Companies That May Be EU Regulators’ Next Targets
Regulators are investigating Amazon’s low-tax deal in 2003 with the government of Luxembourg, where it has its EU headquarters. Until last year, it booked all sales in Europe to the tiny duchy, giving it an unfair advantage over competitors, EU officials contend. Analysts say the fine could reach $450 million.
Ireland, which has lured many businesses to its shores with tax incentives, is appealing the EU’s ruling that Apple pay $14.6 billion in back taxes to the country—even though it would represent more than 5% of Ireland’s 2015 GDP.
Alphabet’s Google faces three separate antitrust cases: over whether it shut out competitors by bundling Google Maps and browser apps on Android handsets, restricting third-party search sites from the AdSense platform, and favoring its own shopping services over other providers’ in Google searches. The cases are still under investigation.
STARBUCKS—(FORMER OFFICES) AMSTERDAM
The EU competition commissioner last year ordered the Seattle-based coffee chain to pay millions to the Netherlands, where it had long had its EU headquarters, shown above. After a public outcry over tax avoidance, Starbucks moved its EU headquarters to London in 2014.
Many Europeans are cheering from the sidelines, outraged at Vestager’s finding that Apple, the world’s richest company, paid a piddling 0.05% in taxes to Ireland on its 2011 profits of 16 billion euros ($18 billion).
Apple CEO Tim Cook disputes Vestager’s figures, calling the ruling “total political crap,” and Apple is preparing an appeal. But Thomas Vinje, a partner at Clifford Chance who represents several U.S. tech companies in EU negotiations, says the response of the European Commission to Apple’s reaction is “likely to be along the lines of ‘Who the hell do you think you are?’ ” Facebook and Google also say they have worked within the law.
Two major rulings expected this winter will set the tone for the new era. First, an investigation of Amazon could result in a fine of hundreds of millions of euros if the EU finds that it dodged taxes by setting up shop in Luxembourg. Second, McDonald’s is also under scrutiny for its low EU tax bill—despite giant profits on the continent.
Yet U.S. companies aren’t likely to pull up stakes. The G-20 nations are working on anti-tax-haven rules elsewhere, leaving companies with few good alternatives. Cook says he even intends to expand in Ireland. Apple first set up shop amid Cork’s rolling farmland in 1980, when a fresh-faced Steve Jobs tapped a Macintosh computer on Irish TV and said, “It weighs just 12 pounds,” adding, “If you don’t like what it’s doing, you can throw it out the window.” Decades later, it’s a little more complicated to defenestrate Apple and other U.S. companies, as much as some Europeans might want to.
A version of this article appears in the October 1, 2016 issue of Fortune with the headline “The European Honeymoon Is Over.”