Court decision forces municipal waste companies to dismantle subsidiary structures providing business services

Municipally owned waste companies must close down or sell off their subsidiary arrangements that provide market-based waste management services.

This is the procedure to be followed if the combined market-based turnover of the subsidiary and the parent company exceeds the sell-out limit.

Otherwise, there is a risk that waste companies will lose their affiliated unit status.

Court of Justice of the European Union (CJEU) Decision made on 15 January 2026 will significantly shape the Finnish waste management field.

The decision will also change operations in all other sectors where municipal affiliated units operate, which in turn own subsidiaries operating in the market.

"The decision of the European Court of Justice will certainly have a very significant impact in Finland. I have no idea how many affiliated entities have subsidiaries that operate in competitive markets, but the solution will require restructuring of these operations," says a senior economist at the Finnish Competition and Consumer Authority (KKV). Lasse Pöyry.

“A big change in Finland”

Pöyry estimates that in order to secure the status of an affiliated unit, the operations of subsidiaries should be practically dismantled, sold or transferred by other arrangement from the parent companies to a completely independent company so that the affiliated unit no longer has 100% ownership or control over the unit operating on market terms.

Court decision However, a more detailed analysis is still underway at the FCCA, so it is not yet possible to say exactly which group and company types the solution will affect.

"In any case, the European Court of Justice's ruling will affect our enforcement of the law, so we will take it into account in our operations."

This is a big change, because until now it has been interpreted in Finland that the separation of market-based operations into a subsidiary does not jeopardize the parent company's affiliated unit status.

The ECJ's interpretation of the Procurement Directive differs from Finland's traditional interpretation

For example, in the waste sector, municipally owned waste management companies operate as affiliated units of the municipalities. This has traditionally been considered a prerequisite for municipalities to be able to transfer their statutory operational waste management service tasks to them.

Since there is usually also a need for waste management services in the region in the private sector, municipal waste companies in some regions have outsourced these market-based services to a subsidiary they own.

In Finland, the EU Procurement Directive has been interpreted for 10 years in such a way that municipalities can do this without a subsidiary operating in the market endangering the parent company's affiliated entity status. This interpretation has been guided by, for example, Parliament's Finance Committee already in 2016, when the Procurement Act was last revised in Finland.

The Finance Committee stated that “it is always possible for affiliated units to separate their operations on the market into a different legal entity (for example, another company), in which case the actual affiliated unit remains only a unit serving the purchasing units.”

Court of Justice of the European Union the solution now made However, this interpretation is overturned. According to the ECJ, the activities of a subsidiary operating on market terms must be counted as a sale of the parent company. Otherwise, it would be evading the conditions for affiliated entity status. The decision concerned a Dutch company that happened to operate in the waste sector.

Of course, subsidiaries may continue to exist if their combined market-based turnover and that of the parent company remain below the divestment threshold.

Effective immediately

Lawyer for the Finnish Renewable Energy Association KIVO, which represents municipal waste companies Matias Penttilä can see that the situation has now changed practically overnight:

"For ten years, there has been a national consensus in Finland that such subsidiary arrangements are OK. This can be seen from the fact that no party has taken subsidiary arrangements to market court," Penttilä says and continues:

"Legally, the interpretation changes immediately. In theory, the calculation method outlined by the court for calculating divestment should be applied immediately, and if the divestment limit is then exceeded for an affiliated unit, the conditions for affiliated unit status are no longer met. In practice, however, the current structures cannot be changed with the snap of a finger. I am not sure whether anyone yet knows how extensively and which affiliated units the change will affect in all different industries," Penttilä reflects.

“The sequel is a mystery”

The ECJ's decision has raised uncertainty among municipal waste companies.

"I am now waiting for information and views from, among others, the ministry, experts and lawyers on what this decision really means. At the moment this is a big mystery. We are not rushing into any decisions, but will watch and follow when more wisdom starts to emerge," said the CEO of the municipal Loimi-Hämeen Jätehuolto in the Forssa region. Immo Sundholm says.

LHJ Group, owned by Loimi-Hämeen Jätehuolto, and its subsidiaries have offered a wide range of services to the market since the beginning of the 2000s.

Sundholm emphasizes that when services were created based on the needs of society, there were no restrictions in line with the current policy of the EUJ.

"It seems strange that 20 years later, due to the situation of one company in one country, the EUJ has come up with such a solution, which forces us to assess whether this activity is still permitted," Sundholm updates.

Kymenlaakso is considering selling or discontinuing operations

Another municipally owned waste company, Kymenlaakson Jäte Oy, owns Ekokaari Oy, which operates on market terms.

“We founded Ekokaari in 2017–2018 because our out-selling share was 30 percent. It seems that we now need to make some kind of business arrangements and reduce the out-selling business. Whether it is by selling operations or closing them, there are different options for this,” Kymenlaakson Jätte’s CEO Kati Manskinen evaluate.

He estimates that the arrangements may have an impact on the area's service offerings and jobs in the waste sector. Ekokaari now employs 17 people.

CEO of Ekokaari Oy Aki Koivula is in a wait-and-see attitude.

"In our strategy work, we have prepared for various future scenarios and measures. We are able to react to this."

The Eco-Architecture was supposed to celebrate its 10th anniversary in 2027.

“Municipal residents' fees may increase”

According to Manskinen, the interpretation of the ECJ is difficult from the perspective of waste management in remote areas.

"Waste management is a volume business. The smaller the waste volumes and the smaller the streams into which they are divided, the less profitable the operation becomes. The result may be that if the provinces want to maintain the recycling rate in the future, the basic fees for municipal waste management will increase, because the unit prices will be higher than they are now."

Both Manskinen and Koivula are aware that operations cannot be closed or sold overnight.

"In Finland, the legislature has also directed companies to establish subsidiaries. Now those who have directed operations in this direction should take responsibility. I expect that those responsible will be found," says Manskinen.

Bonding unit structures for review

Minister of Labour Matthias Martin After receiving an interview request from Uusiouutinen, he asked through his assistant to direct questions related to the topic to the civil service.

Immediately after the ECJ's decision, officials at the Ministry of the Environment or the Ministry of Employment and the Economy were unable to say how the policy would affect Finland. The ministries had no instructions or advice to give to waste management companies or other municipal affiliated units that might be affected.

Special expert of the municipal association Tuulia Innala hopes that common guidelines will be reached on the matter:

"Doesn't the ECJ's decision require a review of the operations of the entire affiliated unit sector and a careful analysis of which structures the solution applies to? In Finland, there are many types of affiliated units, other than those in the waste sector, that can have market-based subsidiaries. The state can also have these," Innala points out.

"I would hope that the Ministry of Employment and the Economy would take an understanding approach to the matter and work with actors from different sectors to think about solutions."

Selling takes time.

In May, the Jyväskylä region's municipal waste company Mustankorkea sold the entire share capital of its subsidiary MKO Ympäristöpalvelut Oy, which operates on market terms, to the private waste management company Verdis Oy.

CEO of Mustankorkea Esko Martikainen says the timing was coincidental.

"We were on the move at the right time, half-accidentally. The owner took the initiative that the city strategy did not include owning companies that operate purely in the market," Martikainen explains.

If the company had continued as a subsidiary of Mustankorkea, the ten percent sell-out limit would have been exceeded quickly. In 2024, approximately 4,9 million of Mustankorkea's 23 million euro turnover was market-based, of which Mustankorkea's share was approximately 1,3 million euro and MKO's share was approximately 3,6 million euro.

The sale of market-based operations did not happen overnight.

"It took a couple of years in total before we were able to complete the sale of the subsidiary. It's a good idea to prepare for this for other waste companies, which may now be starting to prepare to sell their subsidiaries," says Martikainen.

Lasse Pöyry of the Finnish Financial Supervisory Authority understands municipal companies and the fact that restructuring takes time.

"The ECJ's decision is binding law immediately after publication. But there's nothing we can do about it, as municipal companies need time to plan and reorganize their operations."

Strict sell-out limit

According to the ECJ's decision, the sales of a subsidiary providing services on the market must in future be included in the parent company's turnover when assessing whether a municipally owned affiliated unit exceeds the sales threshold.

If sales in the waste sector exceed 10 percent of the group's total consolidated turnover, the municipally owned waste company will lose its affiliated unit status.

Consolidated revenue means revenue less internal sales between the group's units.

In other industries, the sell-off limit is even stricter, 5 percent or 500,000 euros of turnover.

The government program aims to extend the strict five percent sell-out limit to the waste management sector as well. The changes are currently being prepared in the so-called Waste Act 2 in the work, which amends waste legislation and seeks to improve competitive neutrality in the waste sector.

In most other EU countries, the sales limit is clearly higher than in Finland, at 20 percent of turnover.

In Finland, the strict sell-off limit was once partly justified by the fact that municipal companies can always transfer their market-based operations to a subsidiary. With the new ruling by the ECJ, this option is no longer available.

Will the sell-out limit increase or decrease?

The ECJ's decision has recently raised demands in the municipal waste management sector that the sell-out limit should now be raised to 20 percent in Finland as well.

"If we follow the EU's policy on the subsidiary issue, then we will also go to 20 percent in terms of the sell-out limit in accordance with EU policies. I don't understand how anything else could be possible," argues Kati Manskinen of Kymenlaakson Jäte Oy.

The Association of Local Authorities is also in favor of raising the sales limit:

"The Association of Local and Regional Authorities already proposed in connection with the previous procurement law reform that the sell-out limit in Finland would be 20 percent, as elsewhere in the EU. I wondered back in 2016 whether the right solution was to make the sell-out limit really strict and then instruct the establishment of subsidiaries operating on market terms," ​​ponders Tuulia Innala, a special expert at the Association of Local and Regional Authorities.

“Waste management towards a more market-based approach”

The Finnish Recycling Industry Association, which represents private waste companies, has long raised the challenges of competitive neutrality in the waste sector market.

“The group structures of municipal companies have been a topic of discussion for a long time and we have repeatedly highlighted that such structures can weaken competitive neutrality and distort the market,” CEO of the Recycling Industry Mia Nores says.

Nores considers the ECJ's decision important and clarifies the playing field.

"It creates opportunities for a fair market. It is good to move waste management in a more market-based direction in Finland as well."

Will probably affect the Waste Act 2 work

The procurement bill is the project window of the Ministry of Employment and the Economy is coming to Parliament this week, but the new decision of the ECJ will hardly have time to affect it. Work on the Waste Act is underway. At the same time, the EU is also preparing a new proposal for a procurement directive.

Pöyry of the FCCA emphasizes that the sell-out limit is ultimately a political decision. He believes that the ECJ's decision should in any case be taken into account in the ongoing work on Waste Act 2.

"I believe that this must have ripple effects on Waste Act 2. A clear connection has been observed that if there is no possibility of selling out, the demand for secondary responsibility services will increase. It will become increasingly important to ensure that municipalities only offer secondary responsibility services in cases of genuine market failure."

Secondary responsibility, or TSV, means that the municipality provides market-based services in a situation where these services are not otherwise available on the market.

Today, the market lacks its address On the Material Market platform, where the person requesting offers can state that they have not received a suitable, acceptable offer. In that case, they can purchase the services from the municipal company.

According to Pöyry, the current Material Market does not fully serve to address the market gap.

"There is a need to specify the grounds on which offers can be rejected there. Possible supervision should also be increased."

Innala of the Association of Finnish Local and Regional Authorities reminds that municipalities are not obliged to prepare to offer a secondary responsibility service if their own processing capacity is not sufficient.

"I hope that no company will be left without the service it needs. It certainly depends on the market in the area whether private companies are willing to fill the service gap if the municipal company withdraws. Now is the time for companies to show how well they actually serve the business sector," Innala says.

Text: Elina Saarinen, Uusiouutiset

Image: Adobe Stock. As municipal companies are forced to withdraw from serving businesses, trade and industry, space opens up for private waste management market players. Will there be enough private service provision throughout Finland?