A Real-Time Tax Compliance Architecture for VAT Split Payments with Making Tax Smart and Open Banking (arXiv (Cornell University))

Summary

• The UK tax gap deprives vital public services of approximately £46.8 billion in revenue annually.p.1
• The UK VAT gap is estimated at 6.6% of theoretical VAT liability, totaling £12.1 billion for the 2024-2025 fiscal year.p.2
• Electronic bank deposits represent 96% of money held in the economy, whereas physical cash accounts for 4%.p.6
• Mandatory e-invoicing via the Peppol network is set to take effect in the UK in April 2029.p.7
• System testing showed peak invoice issuance throughput reached 11.30 TPS under a load of tx = 10 and cl = 10.p.36
• Invoice payment throughput stabilized at 1.045 ± 0.090 TPS across the complete range of client loads tested.p.37

Key insights

1. Integrating tax functionality into existing payment systems utilizes the informational value of transaction data without jeopardizing financial stability.p.1
2. Defining bank deposit money as a real-time information sensor enables automated compliance enforcement.p.8
3. Utilizing Open Banking APIs provides a secure and established pathway to access bank deposit money for VAT split payments.p.9
4. MTS-OB functions directly on the payment path as an invisible layer between third-party providers and Open Banking APIs.p.10
5. Invoice issuance latency scales linearly with the number of client endpoints across all tested transaction loads.p.36
6. Payment processing performance remains saturated across client population levels due to required Open Banking API calls and account calculations.p.37