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TheStreet Open House

Why Apple's Overseas Tax Probe Is a Black Eye on U.S. Lawmakers

NEW YORK (TheStreet) -- The European Commission Union is preparing to launch a formal investigation against Apple (AAPL - Get Report) and Starbucks (SBUX), among other U.S. companies, to determine the extent of their exploitation of overseas tax breaks.  

It's a "global crackdown" on corporate "tax evasion." The U.S. has long been looking into companies who evade taxes. Now it's the EU's turn. 

But "exploit" and "evade"? Those terms should not be used to describe legal options that are available to U.S. corporations. Besides, rather than eye on Apple and Starbucks, real energy needs to be invested into making U.S. corporate tax law more attractive. High corporate tax rates are what's driving trillions of untaxed earnings offshore in the first place.

So Wednesday it was announced that the EU will be looking at the tax laws in Ireland, which is where Apple's cash is held.  The Commission plans to extend its investigation to other European areas like the Netherlands and Luxembourg as well. 

The United States' corporate tax laws have always been the subject of much debate. Regulators and politicians rarely agree on what a "fair" percentage should be for companies to pay on their billions in annual earnings. Federal tax rates on corporate taxable income vary from 15% to 35%. Some states, as well as local governments disagree on how these monies are to be used.

Making matters worse, these disagreements go beyond the money and are often turned into moral and political issues.

CEOs are not going to wait for a consensus. They have a business to run and shareholders to please. With their hands tied and earnings to preserve, they've had to stash large sums of their profits in their overseas subsidiaries. The alternative is to bring that cash home and pay a significant ransom to the U.S. Treasury, as those safe havens shrink.

"We paid all the taxes we owe, every single dollar," Apple CEO Tim Cook said to defend his company's reputation when accusations flared last year. Cook told U.S. lawmakers that reforms in how the government taxes multinational companies is the real issue.

The U.S. Congress should adjust its tax laws to allow corporations the freedom and flexibility to bring home the corporate earnings currently held overseas. It is believed that more than $2 trillion in corporate untaxed profits are being held overseas. Until big biz has some incentive to repatriate this cash, the U.S. will see very little of it.

That's the real travesty.

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