Menendez, a member of the committee, spoke against the deal in a Tuesday morning Senate Finance Oversight Hearing entitled “Tax Reform — What It Could Mean for Tribes and Territories.”
“I find it ironic that Diageo’s rum brand [Captain Morgan] is named after a pirate, because they set a precedent of pillaging a programme that is meant to provide budgetary support to the territories,” Menendez said at the hearing Tuesday morning. “And in my view, the deal Diageo struck with the US Virgin Islands devastates the effectiveness of the cover over programme for the people of the territories by gutting the revenue that is supposed to go to vital public services and sets a precedent that is pretty terrible and it raises, I think, a death spiral to the bottom.”
In 2010, Diageo signed a 30-year agreement to produce Captain Morgan in St Croix.
Now, the company has an operational rum distillery, an economic boost to the territory made all the more important by the closure of St Croix’s HOVENSA oil refinery, the largest in the Caribbean and the territory’s single-biggest employer and primary source of fuel.
Christensen submitted testimony for the record to reiterate her support for the rum cover over programme, which means that any excise tax collected on rum imported into the US is transferred or “covered-over” to the US Virgin Islands’ and Puerto Rico’s treasuries.
“I view comprehensive tax reform legislation not just as a chance to begin addressing our country’s deficit and long-term debt by closing loopholes and adjusting tax rates, but also as an opportunity to make changes to our tax code that will spur economic development and growth,” she wrote in the testimony.
Christensen said “the tax imposed in the United States is not an ordinary excise tax intended to raise revenue for the United States, but rather, as the courts have recognized, an ‘equalization tax’ intended to regulate commerce between the territories and the United States and to preserve a ‘level playing field’ between territorial and mainland distillers.”
Last year, a similar dispute arose between Christensen and Menendez, when Menendez introduced legislation to cap at 10 percent the portion of rum cover over proceeds that territories can reinvest in their local industries.
Christensen said the legislation was based on a set of incorrect premises.
“Senator Menendez wrongly assumed that the Virgin Islands lured Diageo away from Puerto Rico,” she said in April 2011. “The Virgin Islands’ incentives and investment is in the future of its economy, not in a company.”