UK: Diageo rubbishes Captain Morgan tax break claim

Diageo has moved to correct a recent report claiming that it will gain almost US$3bn from a US tax break.

A news story from Bloomberg late last month suggested that the drinks company would benefit from the emergency Troubled Asset Relief Program (TARP) approved by Congress last year. As a result of the construction of a distillery for its Captain Morgan rum brand on the US Virgin Islands, announced last June, Diageo would qualify for $2.7bn over the next 30 years.

"The hurried legislation adopted by a Congress voting under the threat of sudden global economic collapse led to hidden tax breaks for firms in dozens of industries," the report said.

But, on Wednesday (1 July), Diageo rebuffed the report, claiming it "has never sought, and will not receive TARP funds".

"The suggestion by Bloomberg that Diageo is receiving TARP funds is false," the company said. "The public-private initiative that is bringing Captain Morgan to St. Croix is based on 'cover over' (a federal tax policy), not TARP.

"Cover over has been the law of the land for more than a half century and the rum cover over extender (which increases cover over from $10.50/gallon to $13.50/gallon) has been reenacted every year by Congress as part of an independent package of tax extenders. Congress has enacted the cover over extender based upon its finding that the US Virgin Islands (USVI) has a continuing need for cover over revenues to promote its economic stability and fiscal autonomy."

Congress attached the extenders package to the TARP bill, Diageo noted. "It is clear that the cover over is completely unrelated in any way to either the bailout or TARP money. The suggestion in the Bloomberg article that Diageo somehow benefits from TARP funds is misleading and gives the reader an inaccurate and false impression.

When contacted by just-drinks today, a spokesperson for Diageo confirmed that the reason the company had decided to move production of its Captain Morgan rum brand from Puerto Rico to the US Virgin Islands was because "we will own the new distillery, whereas previously we paid a third party contractor in Puerto Rico for the supply of the rum. It will lower our cost of production and give us greater control over, and certainty of, supply".