The Norwegian Supreme Court rules that dropdown menu error qualifies as a writing error exempting penalty tax

The taxpayer, Caiano AS, is a holding company that conducts business through subsidiaries and associated companies. At the end of 2021, Caiano AS held, amongst other things, a dominant ownership stake in Wilson ASA, an investment accounted for under the equity method.

The error arose because the person completing the tax return for the fiscal year 2021 selected the option "Retrieve from securities register" instead of "Retrieve from account plan" in a dropdown menu in the annual accounting software Maestro, when completing line 0815 of the business income statement. This caused a deduction of about NOK 156 million – representing dividends received from Wilson ASA – to be entered in line 0815, when the correct entry should have been NOK 0. Line 0815 applies to the reversal of recognised dividends on shares not treated under the equity method; since Wilson ASA was accounted for under the equity method, the reversal should have been made in line 0830 instead. The error led to the dividend being deducted twice – both in line 0815 and line 0830.

It was documented that the same person had correctly selected "Retrieve from account plan" in line 0815 for Caiano's tax returns for the fiscal years 2017 to 2020.

Following a notice of intended assessment, the Norwegian Tax Authority issued a penalty tax decision on 13 November 2023, finding that the objective conditions for penalty tax under Section 14-3 (1) of the Tax Administration Act were met as incorrect information was given and that the error was not excusable. The Tax Authority found that the exception for "obvious arithmetic or writing errors" under Section 14-4 (b) did not apply. Penalty tax was set at about NOK 6.8 million.

The Supreme Court ruled in favour of Caiano AS by a majority of three judges to two.

For the exemption in Section 14-4 (b) to apply, two conditions must be satisfied: the error must be characterised as an arithmetic or writing error, and the error must have been obvious to the tax authorities.

On what can be classified as arithmetic or writing errors, the majority stated the following:

The exception in Section 14-4 (b) of the Tax Administration Act covers errors made when completing the tax return which result in an unintended discrepancy between the taxpayer's intention and what is expressed. In addition to classic calculation and typing errors, the exception includes, amongst other things, a lack of understanding of the software's functionality, ticking the wrong answer option and making an incorrect selection in a drop-down menu. A misunderstanding of the information to be entered, however, falls outside the scope of this exception. The same applies to omissions of income that should have been entered.

On the first condition – whether a mistake when selecting the wrong option in a dropdown menu constitutes a "writing error" – the majority therefore held that it is clear that ticking the wrong box or selecting the wrong option in a dropdown menu must be treated as a writing error, provided that the general condition of a discrepancy between intention and expression is met. There is no reason to treat inadvertent keystrokes or clicks more strictly than errors arising from insufficient knowledge of automatic software functions. The majority placed decisive emphasis on the taxpayer's subjective intention which was to provide correct information when assessing whether the incorrect information could be classified as a writing error.

On the second condition – whether the error was "obvious" – the majority emphasised that the income statement in the tax return is structured such that entries on page 4 (reversals) must have a corresponding entry on page 2 (income). Cross-referencing the relevant lines would have made it impossible to avoid noticing that something was wrong. The majority concluded that the error must have been obvious to the tax authorities.

As a result, the Norwegian Tax Authority's decision of 13 November 2023 to impose penalty tax for the 2021 income year was annulled. 

Two judges dissented. The minority found that the error could not be characterised as a writing error, as it required a manual, multi-step operation and appeared to be the result of a deliberate and active choice – a view also adopted by the Court of Appeal. The minority further considered that the evidence suggested the error stemmed from a substantive lapse in judgement rather than an inadvertent keystroke or misclick.

This ruling clarifies that an inadvertent selection of the wrong option in a dropdown menu in accounting software can qualify as a "writing error" exempting a taxpayer from penalty tax under Section 14-4 (b) of the Tax Administration Act – provided the mistake was unintentional and the resulting error would have been obvious to the tax authorities upon a normal review of the tax return. The decision is particularly relevant for businesses that have made unintentional technical mistakes when filing tax returns through digital accounting systems and underscores the importance of the tax return's internal consistency as a basis for identifying apparent errors.