Jim Armitage: Lobbyists help smooth the way for Diageo's jumbo-sized tax breaks

The deal will mean Diageo saves many millions more dollars in rebates

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The Independent Online

Global Outlook All that fiscal cliff business had investors reaching for the drinks cabinet over the new year. But when the bill was passed, one British corporate giant had more reason to celebrate than most. For, believe it or not, thanks to the weird world of United States lobbying, the Smirnoff-to-Guinness giant Diageo emerged as one of the biggest beneficiaries.

While we naïve observers in the rest of the globe thought the legislation was all about saving the US from economic collapse, in fact, for a small but powerful Washington lobbying elite, it was more about driving through a few jumbo-sized special-interest-group tax breaks.

The rest of the world, and US taxpayers, focused on the deep public spending cuts and tax rises for the wealthy presaged by the bill, but President Barack Obama shoehorned in a host of completely unrelated "pork barrel" tax breaks for big business.

One of them was a two-year extension to the tax break mainly benefiting Diageo's Captain Morgan rum distillery in the US Virgin Islands.

The deal will mean Diageo saves many millions more dollars in rebates, which rivals argue makes it hard for the company ever to lose money on the liquor.

It's impossible to state exactly how much Diageo will save as the break is based on how much rum the company manages to shift from its shiny new distillery in the US territory. Some reports have put the annual benefit at around $50m (£31m).

You could argue that's not much for a multi-billion dollar operation like Diageo, but it's a whole lot more than the company paid the Washington lobbyists Trent Lott and John Breaux to push for the change. Data obtainable through the OpenSecrets.org website suggest Diageo paid the pair's firm only $120,000 last year.

Perhaps the duo, a former Republican and Democrat senator, should up their rates. They may need to, since another client, the Lance Armstrong Foundation, may not be paying its $100,000-$250,000 annual lobbying dues for much longer.

As a Brit, whose pension is, I presume, partly invested in the world's biggest drinks company, it's hard not to have mixed feelings. On the one hand, you have to admire Diageo for its political nous in hiring two of the most effective lobbyists in Washington to do its bidding so well. The way the White House jingoistically abused BP after the Deepwater Horizon disaster highlighted how British firms don't always play the game with such elan.

But this kind of lobbying in foreign climes is reputationally risky. As the US media focused on the Armageddon Averted fiscal cliff story, the tale of Diageo's nice little earner didn't cause much of a stink. But think about it: "hard-pressed American taxpayers bail out Limey booze peddlers," could have played pretty big in other circumstances.

Incidentally, Diageo, which did not comment on my queries about this story, managed to get tax incentives worth some $2.7bn when it moved its Captain Morgan distillery from impoverished Puerto Rico to the US Virgin Islands.

But back to Washington, where there were even bigger US corporate beneficiaries from the fiscal cliff bill, thanks to some hefty lobbying activity. Citigroup, General Electric, and, of course, Goldman Sachs were among the needy behemoths given tax breaks in the fiscal cliff negotiations.

GE and Citi hired Messrs Lott and Breaux to lobby for a deal extending the law allowing corporations to defer their US tax bills by moving profits offshore. Sounds familiar? Intensive lobbying by multinationals in the UK has led to similar largesse from HMRC. In the US case, the corporations will bring those "overseas" profits back to the US when the tax rate is more favourable in future years.

GE will also benefit from another weighty tax gift, which should create a flurry of wind farms being built this year and next – juicy profits in store for GE's massive wind engineering division. To negotiate on that, GE and other wind power firms used another well-connected firm of lobbyists, Capitol Tax Partners. Several other companies also hired Capitol to negotiate on their behalf. Given the clearly huge influence of Capitol and Messrs Lott and Breaux, you'd have thought other UK multinationals would be using them, too.

As it happens, only Shell seems to be. The oil giant, which spent $10.9m with various lobbying activities last year, is listed in OpenSecrets data as a client of the Lott and Breaux double act.

Let's hope Shell's Kulluk rig, which ran aground off the Alaskan coast last week, doesn't develop into a situation where the pair's work is needed.