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The tax bill that the U.S. Congress on approved on New Year's Day, 2013 named the 'American Taxpayer Relief Act' (designated H.R.8) includes among its special tax benefits a two-year reauthorization of a subsidy for rum exporters in Puerto Rico and the US Virgin Islands. The United States collects excise taxes on all imported rum. Under the cover-over program, 98% of the rum excise taxes collected on rum imports from those two US territories is returned, ostensibly for the purpose of investing in economic development. The funds have instead been used as an inducement to a major multinational distillery, Diageo, to keep distilleries and production facilities on the islands, and even expand production. According to some estimates, recent contracts extended by USVI to Diageo provide operating subsidies that exceed the actual production cost of a liter of bulk rum. Rum producers on Caribbean islands that cannot participate in this cover-over scheme have complained to the Obama administration about the seriously detrimental effect of this policy on their rum producers, and have threatened to bring a complaint to the World Trade Organization against the United States. The new law retroactively extends the cover-over program from January 1, 2012 through January 1, 2014 at a cost of $222 million.
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