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Is The V.I. Government Interested In Ending Captain Morgan’s Tax Benefits?

V.I. Attorney General Claude Walker

CHRISTIANSTED – The V.I. Department of Justice and the Department of Licensing and Consumer Affairs are investigating Captain Morgan owner Diageo for allegedly shipping rum to the Captain Morgan Rum Distillery while claiming it was importing molasses for rum distillation.

This could place Diageo and its Captain Morgan Rum Distillery in violation of a 30-year deal giving Diageo $2.7 billion in government tax incentives in exchange for moving the Captain Morgan rum distillery from Puerto Rico to St. Croix.

The accusations highlight just how far corporations will go in an effort to absorb tax incentives from local governments. Even if the investigation absolves Captain Morgan of the labyrinthine scheme to ship Captain Morgan rum to a Captain Morgan rum distillery, the investigation has brought the astounding details of Captain Morgan and Diageo’s tax breaks to light.

What possible reason could there be for Diageo to run a smokescreen Captain Morgan distillery, shipping rum to the rum factory? How about a $165 million distillery, paid for entirely by government subsidy, for starters.

The Diageo deal moved Captain Morgan from Puerto Rico to the Virgin Islands also offered subsidized molasses prices, a 90 percent income tax break, property tax exemptions, and even government funding for 35% of Captain Morgan advertising.

The subsidies afforded Diageo to steal rum distillery jobs from U.S. territory and bring it to another are so comprehensive that the net cost Diageo pays to produce Captain Morgan rum is nothing.

“They can give it away and still make money,” Roberto Serrallés, vice president of the Serrallés Distillery, told the Orlando Sentinel in 2010.

Big companies have become quite adept at dodging taxes and taking advantage of our tax codes’ inability to handle the increasing internationalism of major corporations like Google. As of 2014 there were 20 companies in the S&P 500 that self-reported effective tax rates of zero.

But even more galling than tax avoidance is the rise of massive tax incentives, as states and cities hurl money at corporations to keep or attract jobs, essentially staking taxpayer money in one jurisdiction against taxpayer money in another.

Here’s John Oliver on the outrageous brinkmanship that goes into tax incentive deals for major sports teams, essentially pitting city against city to throw more and more taxpayer money at private companies that get to keep profits.

Similar tax incentive boondoggles benefit highly-desirable tech companies, with subsidies in New York competing against subsidies in San Francisco.

For its part, Diageo claims not to be shipping rum to their rum distillery, but instead testing a new blend of molasses and “sugar cane intermediate” at its Captain Morgan distillery that confused investigator and fits “within the boundaries of our agreement with the Government of the Virgin Islands.”

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The Author

John McCarthy

John McCarthy

John McCarthy is primarily known for his investigative reporting on the U.S. Virgin Islands. A series of reports beginning in the 1990's revealed that there was everything from coliform bacteria to Cryptosporidium in locally-bottled St. Croix drinking water, according to a then-unpublished University of the Virgin Islands sampling. Another report, following Hurricane Hugo in 1989, cited a Federal Emergency Management Agency (FEMA) confidential overview that said that over 40 percent of the U.S. Virgin Islands public lives below the poverty line. The Virgin Islands Free Press is the only Caribbean news source to regularly incorporate the findings of U.S. Freedom of Information Act requests. John's articles have appeared in the BVI Beacon, St. Croix Avis, San Juan Star and Virgin Islands Daily News. He is the former news director of WSVI-TV Channel 8 on St. Croix.

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