In an era where intellectual property (IP) drives economic dominance, the United States faces a critical challenge: multinational corporations offshoring their patent portfolios to low-tax havens, eroding the nation’s tax base and undermining fair competition. Recent proposals from President Donald Trump’s Commerce Department transition team offer a bold solution—an annual tax on patents valued at 1% to 5% of their assessed worth, with valuation being the most critical consideration. This measure, if implemented, could generate billions in revenue while incentivizing companies to keep valuable IP onshore, fostering innovation and equity in the global economy. By ensuring only patents with proven or book-valued revenue are taxed, this proposal balances fairness and fiscal responsibility, making it a pragmatic step toward reclaiming lost revenues and promoting American ingenuity.
Patent Offshoring Costs Every American
The problem of patent offshoring persists and remains well-documented, even after the 2017 Tax Cuts and Jobs Act (TCJA) introduced provisions like Global Intangible Low-Taxed Income (GILTI) to curb such practices. While some companies, like Google, have phased out certain structures, offshoring has become more complex and opaque, particularly among tech and pharmaceutical giants like Apple and Pfizer. These firms strategically assign patents and other IP assets to subsidiaries in low-tax jurisdictions such as Ireland, Bermuda, or the Netherlands. By licensing these assets back to their operations in high-tax countries like the U.S., they shift profits abroad, minimizing their overall tax burden. For instance, pharmaceutical companies continue to offshore IP to achieve low effective tax rates on global earnings, routing billions through offshore entities despite TCJA reforms. In 2020, as in 2017, US multinationals continued to report over 40 percent of their overseas profits in three low-tax countries: Ireland, the Netherlands, and Luxembourg. U.S. multinationals continued to accumulate substantial deferred profits offshore (e.g., nearly $2 trillion by end of 2016, including ~$150 billion from eight major pharmaceutical companies). This isn’t isolated; similar tactics contribute to global tax losses estimated in the hundreds of billions annually.
Such practices exploit loopholes in international tax frameworks, allowing corporations to amass fortunes while depriving governments of funds needed for infrastructure, education, and research, ironically, the very ecosystems that enable innovation. In the U.S., where corporate tax rates hover around 21% federally (plus state taxes), offshoring IP creates an uneven playing field. Small inventors and startups, lacking resources for complex international structures, bear a disproportionate tax load, stifling domestic entrepreneurship. Moreover, this erodes public trust, as everyday taxpayers subsidize corporate windfalls. International efforts like the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives have aimed to curb these abuses, but enforcement remains patchy, with conduit countries still facilitating royalty flows. Unilateral action from major economies like the U.S. is essential to drive change.
Patent Valuation Is Key
Trump’s patent tax proposal marks a paradigm shift from the current U.S. Patent and Trademark Office (USPTO) system, where maintenance fees are flat and nominal, typically a few thousand dollars over a patent’s life, regardless of value. Under the new plan, valuation is paramount to its success.
The Trump administration should only value patents with demonstrable revenue (e.g., through licensing agreements) or those explicitly valued on corporate books for tax avoidance purposes would face the 1% to 5% annual levy. Patents generating no revenue should be exempt, protecting small inventors and nascent innovations. This value-based approach, akin to property taxes, ensures high-value IP contributes proportionally to public coffers, potentially raising billions yearly.
Critics, It Seems, are The Culprits
Critics warn of risks, such as deterring innovation by increasing holding costs or disputes over valuations. These critics are largely multinational corporations in tech and pharma. See here, here, and here. Nevertheless, these concerns are addressable through robust design: exemptions for non-revenue-generating patents, transparent valuation methods (e.g., based on licensing revenues or audited book values), and phased implementation.
By taxing only revenue-proven or book-valued patents, the proposal minimizes burdens on small entities while targeting corporate tax avoidance and foreign overreach. It could also reduce the allure of offshoring by raising U.S. holding costs for valuable IP, making low-tax havens less attractive if companies must pay U.S. fees on such assets. While not solely aimed at tax avoidance, this aligns with Trump-era “America First” policies, encouraging asset repatriation.
Trumps Patent Tax is Fair and Necessary
This proposed tax represents a fair and forward-looking reform. Patents can deliver value in many forms, but using them as vehicles for tax avoidance should not be one of them. By tying assessments to valuation and targeting only revenue-producing or strategically booked patents, the measure would ensure that those who gain the most from U.S. legal protections also contribute proportionately.
Patents are granted as an exclusive right in exchange for public disclosure. When the profits derived from them are shifted offshore or manipulated by foreign entities, that foundational bargain breaks down. A value-based tax would help reclaim lost revenues while sending a clear signal that the United States will not tolerate aggressive avoidance schemes or undue foreign influence in its innovation economy.
To succeed, policymakers must emphasize accurate, transparent valuation methods that safeguard small inventors while closing corporate loopholes. If implemented with care, the proposal offers a timely intervention: it promises meaningful fiscal returns, renewed emphasis on domestic innovation, and a more balanced tax system, ensuring that American ingenuity serves the public interest, not just corporate ledgers or overseas tax shelters.
Paul Morinville is Founder and Executive Director of SPARK Innovation. SPARK Innovation strives to create an policy environment where the conception, protection, and commercialization of technologies critical to our economic and national security prosper thereby enabling the United States to take back the global technological lead from China. Paul is an inventor and has been an executive at multiple technology startups including computer hardware, enterprise middleware, video compression software, artificial intelligence, and medical devices, and has licensed patents in the U.S. and China.
PTAB must be dismantled immediately.
I have to wonder how much federal, state and local tax revenue of various types the Patent Death Squad has destroyed by their activities. A dead patent can’t be licensed, used to encourage and/or protect a startup, obtain funding, generate manufacturing jobs to produce the patented invention, etc., etc. And, they don’t generate maintenance fees. That might make a good research project and report to find out just how much the AIA has cost our economy over the past years and how much it would be projected to cost. That might be more money than the tax base erosion that Trump intends to end. Perhaps US Inventor could find out what those AIA costs are?
I fully agree with Peter’s comment above. PTAB is the most CORRUPT entity created by equally corrupt democrats. For years, PTAB had been consistently cancelling patents of small inventors like Molly Metz, or NEVER issue a broad-scope patent to small inventors like me. Unfortunately, top patent office management had been a part of this corruption – for years again. To read more such stories, please visit http://www.USinventor.org .
This justification for a tax on all US patents in force is a non-sequitur, as It can do nothing to repatriate US patent portfolios of entities that offshore their patent-based revenues to evade US taxation. This will gratuitously tax all US innovation and the means for generating revenues on which US entities already pay taxes.
Your argument would make sense if the tax is levied only on US patents assigned to entities that record their revenues offshore to evade US income tax. However, taxing those through the USPTO would be selective for some entities and therefore likely violate US non-discrimination obligations under the International Patent Treaty.