With tax revenue and local pride at stake, the U.S. Virgin Islands escalated its multibillion-dollar rum fight Monday, harshly responding to charges of “unreasonable and excessive” corporate subsidizing leveled by the Puerto Rico congressional delegation last week.

 “These disturbing attacks were launched solely because of displeasure over a company’s market driven decision not to renew a supply relationship with a Puerto Rican company, when continuing a relationship with that company represented an unfavorable business proposition,” said U.S. Virgin Islands Governor John P. deJongh, Jr, in a letter to House Ways and Means Committee Chairman Charlie Rangel (D-NY). 

• Scroll down to read the letter

British liquor-producer Diageo, which makes Captain Morgan, is allowing an agreement with a Puerto Rican subcontractor to expire, and is planning to build a production facility in the U.S. Virgin Islands. 

Through its share of federal rum tax money, the Virgin Islands has offered to finance a water treatment center and distillery and market Captain Morgan in exchange for a 30-year commitment to produce its rum there. U.S. Virgin Islands representatives said the new Diageo distillery and waste-water treatment facility will be paid for by local government bonds.  Those bonds, they said, will be paid off by Diageo from its share of the rum tax rebate. 

Also, Diageo’s relocation gives the U.S. Virgin Islands a higher percentage of the federal rum tax, at the expense of Puerto Rico. 

Puerto Rico’s congressional delegation claims the deal would provide more than 2.7 billion federal tax dollars over 30 years to Diageo meant for economic development and infrastructure improvements.

“What makes the Diageo deal deeply troubling to any objective observer is what Diageo was promised in exchange for moving to the USVI (U.S. Virgin Islands), and how these promises will be paid for,” said four members of the Puerto Rico congressional delegation last week in a letter to Chairman Rangel. 

The letter claims Puerto Rico uses 6% of its federal rum tax revenue to promote “Puerto Rican rums in general.”  The Virgin Islands will use up to half its revenue to subsidize Diageo, said the letter. 

The U.S. Virgin Islands governor shot back Monday, saying “Puerto Rico’s own intricate system of tax breaks and benefits has provided significant subsidies and incentives for decades to business.” Governor deJongh Jr. added that the U.S. Virgin Islands initiatives are “true to the letter and spirit” of the legal uses of the rum tax.

The Puerto Rican delegation is pushing the House Ways and Means Committee to pass a bill that would limit the uses of federal rum tax money.  The Virgin Islands is requesting Congress permanently extend the rum-tax rebates.

“We plan to continue our education efforts to shed light on the misinformation spread by Puerto Rican allies, including the false notion that the USVI lured Diageo from Puerto Rico,” said Louis Penn, deJongh, Jr.’s chief of staff.  “We will ensure Congress understands that this successful public-private partnership will strengthen the USVI’s economy, put our fiscal house in order, grow a historic industry and keep production of Captain Morgan rum in the United States for 30 years."

Virgin Islands Charlie Rangel Letter