Cisco’s billionaire CEO John Chambers has led the recent campaign to let multinationals repatriate their overseas profits to the U.S. at an 85 percent discount.

So it’s particularly awesome that Bloomberg News has an investigation today showing how Chambers and Cisco have gamed the tax system to park $32 billion in profits in low-tax countries.

We have several stories rolled into one powerful one here: A piercing of the PR campaign for a tax holiday led by Chambers, a corporate story about how Cisco avoids paying its fair share of taxes, and most importantly, a piece showing clearly how repatriation holidays incentivize bad behavior. That last is evident from the headline on:

Biggest Tax Avoiders Would Win on Tax Break

That’s a tough headline, and my old Journal colleague Jesse Drucker has the goods to back it up. He reports that:

Cisco Systems Inc. (CSCO) has cut its income taxes by $7 billion since 2005 by booking roughly half its worldwide profits at a subsidiary at the foot of the Swiss Alps that employs about 100 people…

Cisco’s techniques cut the effective tax rate on its reported international income to about 5 percent since 2008 by moving profits from roughly $20 billion in annual global sales through the Netherlands, Switzerland and Bermuda, according to its records in four countries. The maneuvers, permitted by tax law, show how companies that use such strategies most aggressively would get the biggest benefit from the holiday, said Edward D. Kleinbard, a law professor at the University of Southern California in Los Angeles.

This is the latest in Drucker’s series of reports on how American companies use loopholes to avoid paying taxes.

For instance, here’s one thing Cisco does, and it’s perfectly legal:

Cisco transfers a portion of the patent rights to technology developed in the U.S. to a Dutch unit, which sells some of the resulting products back to its parent for eventual distribution in the U.S., according to annual reports filed by the Amsterdam subsidiary. That means Cisco credits about $5 billion in U.S. sales annually to the Netherlands.

Drucker reports that Cisco’s Amsterdam hub has just 2 percent of its global workforce but gets credited with more than 50 percent of its global revenues. But that’s not the end of it. Cisco then transfers most of the profit from the Netherlands to low-or-no-tax countries like Switzerland and Bermuda, in the process shortchanging countries like France and Germany. Its Swiss unit has just a hundred workers and its Bermuda unit is a shell company.

There’s lots of great context here too, like how much the repatration holiday is estimated to cost U.S. taxpayers ($79 billion over ten years), what that would pay for (all federal cancer research), how much these schemes cost taxpayers every year ($90 billion), what corporations did with the windfall they got from the last repatration holiday (gave it to shareholders), and how the revolving door is at work here: Obama’s former communications director Anita Dunn is advising the tax-holiday campaign.

And this is just funny:

On earnings calls, in speeches and in national media, Chambers has made the case for the tax break, saying it would help overcome a corporate tax system he calls “a dinosaur” and “put more than two million Americans back to work.”

It’s unclear whether any jobs would come from Cisco, which announced plans in May to shed an unspecified number of workers.

This is one of those stories that ought to totally alter the debate in Washington, but the interests are powerful, the stakes are high, and Bloomberg is one of the few outlets left with the resources to take these kinds of stories on.

Don’t underestimate how hard it is to produce a story like this. Tax investigations are time-consuming and mind-numbing. The issues are arcane and opaque. There’s a ton of work that goes into this kind of thing.

In other words, it doesn’t just pop out of a toaster, as Audit Chief Dean Starkman likes to say. All the more reason to applaud this one.