EU court curbs loopholes in public procurement

The decision arose from a Dutch request for a preliminary ruling, but it will also have significant implications for Finland.

“In future, municipalities’ in-house companies will not be able to circumvent the Public Procurement Act by transferring market-based activities to subsidiaries they own. The direction is now towards more open markets, and the Public Procurement Act will no longer be bypassed through contrived structures,” says Tiina Toivonen, Legislative Affairs Manager at Suomen Yrittäjät, the Finnish SME association.

Under the Procurement Directive, a municipality may buy goods and services from a limited company it owns without a competitive tendering process. One key condition is that the share of the company’s market-based activity must not exceed 20% of its total turnover. In Finland, the threshold has been set more strictly than in the Directive to promote competition: the general limit is five per cent and €500,000, and in the waste management sector 10%.

“In Finland, it has traditionally been considered that the turnover of subsidiaries of a municipally owned parent company is not included when calculating the percentage share of market-based activity. The CJEU ruling changes that interpretation,” notes Harri Jaskari, a Vice President at Suomen Yrittäjät.

In its preliminary ruling in case C-692/23, the Court states that the turnover of subsidiaries of an in-house company must also be taken into account when calculating the share of market-based activity. The grounds for the decision are that municipally owned companies operating in the market could otherwise distort competition in relation to private companies.

Strengthens fair competition

“The ruling is significant for business owners and for fair competition,” Toivonen says.

“The EU clearly wants to underline the importance of fair competition, which is also reflected in the Court’s decision. As a country with a small domestic market, Finland must be a leader in correcting distortions of competition quickly. In-house companies, which have become more common in recent years, should be dismantled without delay,” Jaskari adds.

“This is not merely a change in legal interpretation, but part of a broader societal reform. In future, the rules of society should be adjusted more in line with the other Nordic countries. In the Nordic countries, public-sector companies do not distort competition in sectors where there are already many private operators.”

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