Competitive neutrality
The objective of competitive neutrality regulation is to safeguard fair competition between the public and the private sector in the market.
The public sector’s unfair competitive advantages may have a negative impact on the business of private companies competing in the same market. On the other hand, the public sector can create more competition in the market. While the public sector may operate in the market, the legislation imposes certain conditions for this. The FCCA ensures fair competition between the public sector and private companies.
The FCCA is competent to intervene in a public organisation’s economic activity in a market shared with private companies.
The FCCA can intervene in a public organisation’s business practices or organisational structures that lead or may lead to distortion of competition. For example, the FCCA may intervene in the activities of a public organisation if it neglects the obligation to incorporate its market activities or to keep separate accounts of them or fails to comply with the requirement of market-based pricing.
The basic principle is that a public organisation must incorporate its market activities
A non-corporate operating structure offers significant advantages compared to other companies operating in the market. Corporatisation eliminates protection against bankruptcy and tax benefits. Apart from some exceptions, a public organisation must transfer its market activities into a limited liability company, cooperative, association or foundation.
Market-based pricing is a precondition for effective competition
The FCCA monitors public organisations operating in the market, including the central government and municipalities as well as companies controlled by them, to ensure that the pricing of their products and services is market-based. Market-based pricing refers to such a price level a private company would charge for its products or services in a similar situation.
Market-based pricing means that the following principles are observed in the public organisation’s activities on the market:
- The activity does not gain an unfair competitive advantage from the public status or ownership.
- The prices reflect all actual costs of producing the products or services.
- The operation must be profitable: the operating income covers all operating costs and a reasonable return on the capital invested in the business.
Separation of accounts
To increase transparency in public organisations’ operation and to enhance the enforcement of competitive neutrality, public organisations must keep separate accounts of their market-based economic activities.
Revenue and expenses related to a separated activity must be shown in a profit and loss statement specific to a given accounting period, which should be based on the public organisation’s accounts. The profit and loss statement and its additional information are public and must be attached to the financial statements.
The obligation to keep separate accounts does not apply to small-scale economic activity. The obligation to keep separate accounts does not apply in cases where a public organisation’s turnover from economic activity in a competitive market is less than EUR 40,000 per year.
Enforcement of competitive neutrality and initiating a case
The FCCA may investigate the activities of a public organisation on its own initiative or when it receives a request for action. The FCCA monitors the activities of public organisations in different sectors and may produce market reports, for example to help target enforcement actions. Discussions with trade organisations are another way of obtaining information about possible competition problems.
If you would like the FCCA to evaluate a case, you should submit a request for action to kirjaamo@kkv.fi. Once the FCCA has received a request for action, it can carry out a preliminary investigation in the matter and decide if a further investigation is called for.
You can also send the FCCA an anonymous tip concerning a competition problem. The FCCA may use such tips to target its investigations, but a tip is not enough to initiate a case.
The FCCA prioritises its tasks and only launches a further investigation in cases whose negative impacts on competition can be considered likely and significant.
The FCCA has a duty to primarily attempt to rectify competition problems by negotiating with public organisations. The FCCA may also impose obligations or prohibit operations if it finds that a public organisation’s activity distorts competition, and no solution can be reached through negotiations. As a last resort, the FCCA may also impose a periodic penalty payment to ensure compliance with an obligation or prohibition.
The FCCA has a duty to primarily attempt to rectify competition problems by negotiating with public organisations. The FCCA may also impose obligations or prohibit operations if it finds that a public organisation’s activity distorts competition, and no solution can be reached through negotiations. As a last resort, the FCCA may also impose a periodic penalty payment to ensure compliance with an obligation or prohibition.