Diageo accuses Bacardi of rum behaviour

Diageo has launched a blistering attack on rival Bacardi, accusing it of leading a "hidden campaign" for commercial gain that would "kill" off a series of lucrative tax excises that the maker of Captain Morgan rum would receive by shifting production from Puerto Rico to the US Virgin Islands.

Diageo said that Bacardi officials have been lobbying US congressional leaders to force the London-based drinks giant to move production outside the US. This would not only protect Bacardi's "own huge government rum subsidies", but it would also prevent the maker of Johnnie Walker whisky from raking in huge annual tax incentives from producing and selling rum on American soil.

Diageo argues that Bacardi, the maker of the eponymous spirit, fears it will use the direct and indirect tax incentives – equal to $2.7bn over 30 years – to invest heavily in the Captain Morgan brand, a direct competitor, such as through marketing and beefing up production at the fully owned facility in the US Virgin Islands. Diageo has stated that Captain Morgan is one of its eight "global priority brands". Bacardi is the world's second biggest-selling spirit by volume.

Guy Smith, Diageo North America's executive vice-president, said: "The company [Bacardi] has been working behind the scenes in collaboration with other self-interested constituents and corporations and has used front groups and Puerto Rico politicians to make spurious claims about the US Virgin Islands initiative."

He added that the move to "kill the US Virgin Islands initiative" would "devastate" the economy of the US Virgin Islands. The dispute centres on Diageo's decision in 2008 to build its own distillery on the US Virgin Islands and move production away from a facility run by a third party, Serralles, in Puerto Rico. This followed a landmark 30-year public-private initiative between the UK company and the US Virgin Islands.

Diageo also hit back at accusations that it was responsible for the loss of 400 jobs in Puerto Rico by stressing it did not own the distillery in the country and had served notice on Serralles three years ago. Mr Smith said that Bacardi receives "tens of millions of dollars a year" from annual government rum subsidies.

However, a Bacardi spokeswoman hit back at the "13-page attack by Diageo". She said: "This issue is about one point – the appropriate use of approximately $2.7bn in taxpayer money. This isn't about where Diageo receives a free distillery, but about the proper use of federal tax dollars. Diageo has some explaining to do to the US Congress and American people."

For more than 50 years, the US Congress has provided "rum cover-over" revenues to help the US Virgin Islands attain economic stability, but until the 2008 initiative it had failed to attract substantial rum production.

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