UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

Date of Report: July 31, 2023

Commission File Number: 001-39570

TIM S.A.
(Exact name of Registrant as specified in its Charter)

João Cabral de Melo Neto Avenue, 850 – North Tower – 12th floor
22775-057 Rio de Janeiro, RJ, Brazil
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).

Yes ☐ No ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).

Yes ☐ No ☒

 
 

 

 

 

 

 

 

 

 

TIM S.A. and SUBSIDIARY

 

 

 

QUARTERLY INFORMATION on

June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

TIM S.A.

 

QUARTERLY INFORMATION

 

June 30, 2023

 

 

 

Contents

 

Independent auditors’ report on quarterly information 1
Individual and consolidated quarterly information  
Balance sheets 3
Statements of income 5
Statements of comprehensive income 6
Statements of changes in shareholders' equity 7
Statements of cash flows 9
Statements of added value 11
Performance comment    12
Notes to the individual and consolidated quarterly information 37
Directors' statement on quarterly information 123
Statement of the Executive Officers on the quarterly information 124
Statement of the Executive Officers on the Independent auditors' report 125

 

 

 

 

 

 

 

 

 
 

Report on the review of quarterly information

 

Independent auditor’s review report on quarterly information

 

Shareholders, Directors and Officers of

TIM S.A.

Rio de Janeiro - RJ

 

Introduction

 

We have reviewed the accompanying individual and consolidated interim financial information, contained in the Quarterly Information Form (ITR) of Tim S.A. (the “Company”) for the quarter ended June 30, 2023, comprising the balance sheet as of June 30, 2023, and the statements of income and of comprehensive income for the three and six-month periods then ended, and the statements of changes in shareholders’ equity and of cash flows for the six-month period then ended, including the explanatory notes.

 

Management is responsible for the preparation of the individual and consolidated interim financial information in accordance with NBC TG 21 – Interim Financial reporting, and IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the fair presentation of this information in conformity with the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of the Quarterly Information Form (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

 

Scope of review

 

We conducted our review in accordance with the Brazilian and international standards on review engagements (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

 

1 
 

Report on the review of quarterly information

 

Conclusion on the individual and consolidated interim financial information

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the quarterly information referred to above are not prepared, in all material respects, in accordance with NBC TG 21 and IAS 34 applicable to the preparation of Quarterly Information Form (ITR) and presented consistently with the rules issued by the Brazilian Securities and Exchange Commission (CVM).

 

Other matters

 

Statements of value added

 

The abovementioned quarterly information includes the individual and consolidated statement of value added (SVA) for six-month period ended June 30, 2023, prepared under Company’s Management responsibility and presented as supplementary information by IAS 34. These statements have been subject to review procedures performed together with the review of the quarterly information with the objective to conclude whether they are reconciled to the interim financial information and the accounting records, as applicable, and if its format and content are in accordance with the criteria set forth by the NBC TG 09 – Statement of Value Added. Based on our review, nothing has come to our attention that causes us to believe that they were not prepared, in all material respects, consistently with the overall individual and consolidated interim financial information.

 

Rio de Janeiro, July 31, 2023

 

ERNST & YOUNG

Auditores Independentes S/S Ltda.

CRC SP-015199/F

 

 

 

Fernando Alberto S. Magalhães

Contador CRC SP-133169/O

 

 

 

 

 

2 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
BALANCE SHEETS
June 30, 2023 and December 31, 2022
(In thousands of reais)
               
    Parent Company   Consolidated
  Note June 2023   December 2022   December 2022
             
Assets   55,706,609   52,925,205   56,408,367
             
Current assets   9,280,856   9,828,112   10,364,415
Cash and cash equivalents 4 3,067,012   1,785,100   2,548,713
Securities 5 271,607   2,190,635   2,190,635
Trade accounts receivable 6 3,567,703   3,739,452   3,421,094
Inventory 7 374,429   236,117   236,117
 Recoverable income tax and social contribution 8.a 166,575   361,349   361,349
 Taxes, fees and contributions to be recovered 9 748,903   820,338   831,661
Prepaid expenses 10 480,950   198,506   278,851
Derivative financial instruments 37 265,543   239,189   239,189
Leases 17 29,036   30,643   30,643
Other amounts recoverable 18 80,218   26,519   26,519
Other assets 12 228,880   200,264   199,644
             
Non-current assets   46,425,753   43,097,093   46,043,952
Long-term receivables   5,792,243   4,579,313   5,426,136
Securities 5 13,444   12,929   12,929
Trade accounts receivable 6 236,303   238,683   238,683
           Recoverable income tax and social contribution 8.a 835,036   517,878   517,878
Taxes, fees and contributions to be recovered 9 1,004,562   889,472   895,408
Deferred income tax and social contribution 8.c 1,287,407   526,700   1,367,586
Judicial deposits 11 1,421,681   1,377,560   1,377,560
Prepaid expenses 10 89,485   80,258   80,258
Derivative financial instruments 37 499,434   662,433   662,433
Leases 17 207,768   208,003   208,003
Other financial assets 12 162,958   -   -
Other assets 13 34,165   65,397   65,398
             
Investment 14 1,498,437   5,739,739   1,540,116
Property, plant and equipment 15 23,084,886   19,775,260   22,661,152
Intangible 16 16,050,187   13,002,781   16,416,548
               
               

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

3 
 

 

             
TIM S.A. and TIM S.A. and SUBSIDIARY
BALANCE SHEETS
June 30, 2023 and December 31, 2022
(In thousands of reais)
             
    Parent Company   Consolidated
  Note June 2023   December 2022   December 2022
             
Liabilities and Shareholders´ equity   55,706,609   52,925,205   56,408,367
             
Total liabilities   30,379,525   27,527,840   31,011,002
             
Current liabilities   13,261,172   12,057,530   13,118,009
Suppliers 19 3,650,934   4,385,356   4,237,229
Loans and financing 21 2,170,578   1,264,967   1,264,967
Lease liabilities 17 2,106,253   1,353,869   2,257,211
Derivative financial instruments 37 353,306   343,142   343,142
Payroll and related charges   346,170   343,541   343,541
Income tax and social contribution payable 8.b 47,084   78,351   78,351
Taxes, fees and contributions payable 22 2,588,106   2,126,678   2,277,727
Dividends and interest on shareholders’ equity payable 26 334,080   661,494   661,494
Authorizations payable 20 510,706   507,685   507,685
Deferred revenues 23 268,686   222,829   265,417
Other contractual obligations 1.2.1 748,291   748,291   748,291
Other liabilities 25 136,978   21,327   132,954
             
Non-current liabilities   17,118,353   15,470,310   17,892,993
Loans and financing 21 2,618,997   3,704,858   3,704,858
Derivative financial instruments 37 -   50,230   50,230
Lease liabilities 17 10,995,296   8,595,004   10,574,654
Taxes, fees and contributions payable 22 12,077   13,540   13,540
Provision for legal and administrative proceedings 24 1,288,667   1,112,153   1,112,156
Pension plan and other post-employment benefits 38 5,825   5,825   5,825
Authorizations payable 20 1,089,394   1,150,531   1,165,705
Deferred revenues 23 637,814   666,612   666,612
Other liabilities 25 470,283   171,557   599,413
             
Shareholders´ equity 26 25,327,084   25,397,365   25,397,365
Share Capital   13,477,891   13,477,891   13,477,891
Capital reserves   419,413   408,602   408,602
Profit reserves   10,914,879   11,514,879   11,514,879
Equity valuation adjustments   (3,844)   (3,844)   (3,844)
Treasury shares   (163)   (163)   (163)
Profit for the period   518,908   -   -
             
               

 

See the accompanying notes to the individual and consolidated quarterly information.

 

4 
 

 

                   
TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF INCOME
Periods ended June 30, 2023 and 2022
(In thousands of reais, except as otherwise stated)
                   
      Parent Company
  Notes   2Q23   June 2023   2Q22   June 2022
                   
Net revenue 28   5,863,260   11,512,527   4,961,410   9,688,604
                   
                   
Costs of services provided and goods sold 29   (2,932,540)   (5,987,277)   (2,345,250)   (4,645,726)
Gross income     2,930,720   5,525,250   2,616,160   5,042,878
                   
Operating revenues (expenses):                  
    Selling expenses 29   (1,372,827)   (2,741,414)   (1,305,367)   (2,510,247)
General and administrative expenses 29   (418,199)   (866,595)   (448,087)   (896,960)
    Equity in earnings 14   (23,086)   111,708   (117,497)   (126,171)
Other revenues (expenses), net 30   (77,782)   (176,563)   (44,124)   (113,519)
      (1,891,894)   (3,672,864)   (1,915,075)   (3,646,897)
                   
Income before financial revenues and expenses     1,038,826   1,852,386   701,085   1,395,981
                   
Financial revenues (expenses):                  
   Financial revenues 31   316,216   670,652   329,305   725,704
   Financial expenses 32   (741,297)   (1,429,089)   (709,043)   (1,348,355)
   Foreign exchange variations, net 33   (722)   (3,567)   9,799   4,730
      (425,803)   (762,004)   (369,939)   (617,921)
                   
Income before income tax and social contribution     613,023   1,090,382   331,146   778,060
                   
Income tax and social contribution 8.d   13,449   (51,474)   (51,608)   (93,157)
                   
Net profit for the period     626,472   1,038,908   279,538   684,903
                   
Earnings per share attributable to the Company’s shareholders (expressed in R$ per share)                  
                   
Basic earnings per share 34   0.26   0.43   0.12   0.28
                   
Diluted earnings per share 34   0.26   0.43   0.12   0.28
                     

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

5 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF INCOME
Periods ended June 30, 2023 and 2022
(In thousands of reais, except as otherwise stated)
                   
      Consolidated
  Notes   2Q23   June 2023   2Q22   June 2022
                   
Net revenue 28   5,863,260   11,503,415   5,368,081   10,095,275
                   
                   
Costs of services provided and goods sold 29   (2,932,540)   (5,744,233)   (2,676,925)   (4,977,401)
Gross income     2,930,720   5,759,182   2,691,156   5,117,874
                   
Operating revenues (expenses):                  
Selling expenses 29   (1,372,827)   (2,852,794)   (1,451,309)   (2,656,189)
General and administrative expenses 29   (418,199)   (868,181)   (448,576)   (897,449)
Equity in earnings 14   (23,086)   (41,679)   (14,041)   (22,716)
Other revenues (expenses), net 30   (77,782)   (178,190)   (45,004)   (114,399)
      (1,891,894)   (3,940,844)   (1,958,930)   (3,690,753)
                   
Operating profit     1,038,826   1,818,338   732,226   1,427,121
                   
Financial revenues (expenses):                  
   Financial revenues 31   316,216   691,401    335,884    732,283
   Financial expenses 32   (741,297)   (1,337,014)    (784,641)    (1,423,953)
   Foreign exchange variations, net 33   (722)   (3,567)   9,799   4,730
      (425,803)   (649,180)   (438,958)   (686,940)
                   
Income before income tax and social contribution     613,023   1,169,158   293,268   740,181
                   
Income tax and social contribution 8.d   13,449   (130,250)   (13,730)   (55,278)
                   
Net profit for the period     626,472   1,038,908   279,538   684,903
                   
Earnings per share attributable to the Company’s shareholders (expressed in R$ per share)                  
                   
Basic earnings per share 34   0.26   0.43   0.12   0.28
                   
Diluted earnings per share 34   0.26   0.43   0.12   0.28
                   

 

 

 

 

 

 

6 
 

 

 

                 
TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF COMPREHENSIVE INCOME
Periods ended June 30, 2023 and 2022
(In thousands of reais)
                 
    Parent Company
    2Q23   June 2023   2Q22   June 2022
                 
Net profit for the period    626,472    1,038,908    279,538    684,903
                 
Other items in comprehensive income                
Total comprehensive income for the period   626,472   1,038,908    279,538     684,903

 

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

7 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF COMPREHENSIVE INCOME
Periods ended June 30, 2023 and 2022
(In thousands of reais)
                 
    Consolidated
    2Q23   June 2023   2Q22   June 2022
                 
Net profit for the period    626,472    1,038,908    279,538    684,903
                 
Other items in comprehensive income                
Total comprehensive income for the period   626,472   1,038,908    279,538     684,903

 

 

 

 

 

 

8 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Periods ended June 30, 2023
(In thousands of reais)
                      Profit reserves                 
    Share Capital   Capital reserve   Legal reserve   Reserve for expansion   Additional dividends/interest on shareholders’ equity proposed   Tax incentive Reserve   Treasury shares   Equity valuation adjustments   Retained earnings   Total
Balances on January 01, 2023 13,477,891   408,602   1,250,448   7,540,020   600,000   2,124,411   (163)   (3,844)   -   25,397,365
                                         
Total comprehensive income for the period                                        
      Net profit for the period   -   -   -   -   -   -   -   -   1,038,908   1,038,908
Total comprehensive income for the period   -   -   -   - - - - -   -   -   1,038,908   1,038,908
Total contribution from shareholders and distribution to shareholders                                        
       Long-term incentive plan (note 27)   -   10,811   -   -   -           -   -   10,811
   Allocation of net profit for the period:                                        
        Interest on Shareholders’ Equity (note 26)   -   -   -   -   -               (520,000)   (520,000)
         Additional dividends/interest on shareholders’ equity distributed   -   -   -   (600,000)   -   -   -   -   -   (600,000)
         Distribution of reserve for expansion (Note 26)   -   -   -   600,000   (600,000)           -   -   -
Total contribution from shareholders and distribution to shareholders   -   10,811   -   -   (600,000)   -   -   -   (520,000)   (1,109,189)
Balances at June 30, 2023 13,477,891   419,413   1,250,448   7,540,020   -   2,124,411   (163)   (3,844)   518,908   25,327,084

 

 

 

 

 

 

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

9 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Six-month period ended June 30, 2022
(In thousands of reais)
                      Profit reserves                 
    Share Capital   Capital reserve   Legal reserve   Reserve for expansion   Tax incentive reserve   Treasury shares   Equity valuation adjustments   Retained earnings   Total
Balances on January 01, 2022 13,477,891   401,806   1,175,215   8,103,035   1,958,301   (4,857)   (4,285)   -   25,107,106
                                     
Total comprehensive income for the period                                    
      Net profit for the period   -   -   -   -   -   -   -   684,903   684,903
Total comprehensive income for the period   -   -   -   -   -   -   -   684,903   684,903
Total contribution from shareholders and distribution to shareholders                                    
       Long-term incentive plan (note 27)   -   29,545   -   -           -   -   29,545
      Purchase of treasury shares, net of disposals   -   -   -   -       (25,080)   -   -   (25,080)
   Allocation of net profit for the period:                                    
        Interest on Shareholders’ Equity (note 26)   -   -   -   -               (465,000)   (465,000)
Total contribution from shareholders and distribution to shareholders   -   29,545   -   -   -   (25,080)   -   (465,000)   (460,535)
Balances at June 30, 2022 13,477,891   431,351   1,175,215   8,103,035   1,958,301   (29,937)   (4,285)   219,903   25,331,474

 

 

 

 

 

 

 

 

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

10 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF CASH FLOWS
Periods ended June 30, 2023 and 2022
(In thousands of reais)
                   
      Parent Company   Consolidated
  Note   June 2023   June 2022   June 2023   June 2022
Operational activities                  
Income before income tax and social contribution      1,090,382    778,060    1,169,158    740,181
 Adjustments to reconcile income to net cash generated by operating activities:                  
Depreciation and amortization 29    3,392,038    2,804,621    3,611,664    3,088,653
Equity in earnings 14    (111,708)    126,171    41,679    22,716
Residual value of property, plant and equipment and intangible written off      2,813    (52,899)    79,887    (52,154)
Interest on asset retirement obligation      10,175    420    15,350    5,318
Provision for legal and administrative proceedings 24    172,935    120,643    172,932    120,643
Inflation adjustment on judicial deposits and legal and administrative proceedings      105,828    79,549    105,828    79,549
Interest, monetary and exchange rate variations on loans and other financial adjustments      75,151    437,421   2,126   440,000
Yield from securities     (26,148)   (160,925)   (26,148)   (160,925)
Interest on lease liabilities 32    613,700    523,212    512,126    590,047
Lease interest 33    (13,860)    (13,822)    (13,860)    (13,822)
Provision for expected credit losses 29    286,767    282,440    305,792    297,293
Long-term incentive plans 27    10,811    29,545    10,811    29,545
       5,608,884   4,954,436    5,987,345    5,187,044
Reduction (increase) in operating assets                  
Trade accounts receivable     712,456    (397,135)   671,860    (382,105)
Taxes, fees and contributions to be recovered     (100,770)    581,022   (106,200)    578,474
Inventory     (138,311)    (77,593)   (138,311)    (77,593)
Prepaid expenses     (195,497)    (149,839)   (211,325)    (335,232)
Judicial deposits     14,920    35,756   14,920    35,756
Other assets     (47,395)    (82,823)   (41,316)    (82,386)
Increase (decrease) in operating liabilities     -       -    
Payroll and related charges     2,629   (18,133)   2,629   (18,133)
Suppliers     (1,339,636)   (207,888)   (1,722,734)   (244,656)
Taxes, fees and contributions payable     357,177   14,968   327,913   118,741
Authorizations payable     (104,422)   (2,263,630)   (104,422)   (2,262,154)
Payments for legal and administrative proceedings   24   (161,290)   (110,567)   (161,290)   (110,567)
Deferred revenues     3,263   (36,723)   (25,530)   (21,735)
Other liabilities     (174,393)   (73,218)   (208,821)   (91,981)
Cash generated by operations     4,437,615   2,168,633   4,284,718   2,293,473
Income tax and social contribution paid      (197,279)   -    (197,279)   -
Net cash generated by operating activities     4,240,336   2,168,633   4,087,439   2,293,473
                   
                   

 

 

11 
 

 

 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF CASH FLOWS
Periods ended June 30, 2023 and 2022
(In thousands of reais)

 

      Parent Company Consolidated
      Note   June 2023          June 2022 June 2023   June 2022
Investment activities                  
Securities     1,944,661   3,641,150   1,944,661   3,641,150
Capital increase in subsidiary Cozani     -   (250,722)   -   -
Cash arising from merger (Note 1)     421,835   -   -   -
Cash from the acquisition of Cozani (Note 1)     -   -   -   193,382
Consideration for the acquisition of Cozani     -   (6,410,794)   -   (6,410,794)
Additions to property, plant and equipment and intangible     (2,214,227)   (2,376,116)   (2,214,227)   (2,377,628)
Other     15,702   (8,887)   15,702   (8,887)
Net cash generated by (used in) investment activities     167,971   (5,405,369)   (253,864)   (4,962,777)
                   
Financing activities                  
New loans     -   1,249,128   -   1,249,128
Amortization of loans     (133,136)   (487,559)   (133,136)   (487,559)
Interest paid- Loans     (107,407)   (70,742)   (107,407)   (70,742)
Payment of lease liability     (800,060)   (616,054)   (916,254)   (697,426)
Interest paid on lease liabilities     (634,006)   (515,535)   (706,693)   (565,799)
Derivative financial instruments     18,966   (96,055)   18,966   (96,055)
Purchase of treasury shares, net of disposals     -   (25,082)   -   (25,082)
Dividends and interest on shareholders´ equity paid     (1,470,752)   (667,194)   (1,470,752)   (667,194)
Net cash applied in financing activities     (3,126,395)   (1,229,093)   (3,315,276)   (1,360,729)
                   
Increase (decrease) in cash and cash equivalents     1,281,912   (4,465,829)   518,299   (4,030,033)
Cash and cash equivalents at the beginning of the period     1,785,100   5,228,615   2,548,713   5,228,615
Cash and cash equivalents at the end of the period     3,067,012   762,786   3,067,012   1,198,582
                       

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

12 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF VALUE ADDED
Periods ended June 30, 2023 and 2022
(In thousands of reais)
  Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
Revenues              
Gross operating revenue 16,200,727   13,507,536   16,239,128   14,014,445
Losses on doubtful accounts receivable (286,767)   (282,440)   (305,793)   (297,293)
Discounts granted, returns and others (2,860,398)   (1,545,169)   (2,861,001)   (1,548,281)
  13,053,562   11,679,927   13,072,334   12,168,871
Supplies acquired from third parties              
Costs of services provided and goods sold (2,370,604)   (1,663,697)   (1,907,189)   (1,752,989)
Materials, energy, third-party services and others (1,931,731)   (1,738,693)   (2,003,086)   (1,829,720)
  (4,302,335)   (3,402,390)   (3,910,275)   (3,582,709)
Retentions              
Depreciation and amortization (3,392,038)   (2,804,621)   (3,611,664)   (3,088,653)
Net added value generated 5,359,189   5,472,916   5,550,395   5,497,509
Value added received in transfer              
Equity in earnings 111,708   (126,171)   (41,679)   (22,716)
Financial revenues 854,229   810,642   874,978   817,222
  965,937   684,471   833,299   794,506
Total added value to be distributed 6,325,126   6,157,387   6,383,694   6,292,015
               
Added value distribution              
Personnel and expenses              
      Direct remuneration 372,933   335,063   372,933   335,063
      Benefit 117,235   104,552   117,235   104,552
      FGTS 37,571   33,281   37,571   33,281
      Other 24,929   29,535   24,929   29,535
  552,668   502,431   552,668   502,431
Taxes, fees and contributions              
     Federal 1,137,858   1,096,526   1,283,426   1,119,590
     State 1,312,541   1,820,686   1,317,241   1,901,714
     Municipal 50,271   47,764   49,950   47,936
  2,500,670   2,964,976   2,650,617   3,069,240
Third-party Capital Remuneration              
   Interest 1,614,053   1,426,914   1,521,979   1,502,513
   Rentals 612,821   575,586   613,516   530,351
  2,226,874   2,002,500   2,135,495   2,032,864
Other              
   Social investment 6,006   2,577   6,006   2,577
  6,006   2,577   6,006   2,577
Shareholder's Equity Remuneration              
   Dividends and interest on shareholders´ equity 520,000   465,000   520,000   465,000
   Retained earnings 518,908   219,903   518,908   219,903
  1,038,908   684,903   1,038,908   684,903

 

See the accompanying notes to the individual and consolidated quarterly information.

 

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38 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

1.Operations

 

 

1.1. Corporate Structure

 

TIM S.A. (“TIM” or “Company”) is a public limited company with Registered office in the city of Rio de Janeiro, RJ, and a subsidiary of TIM Brasil Serviços e Participações S.A. (“TIM Brasil”). TIM Brasil is a subsidiary of the Telecom Italia Group that holds 66.59% of the share capital of TIM S.A on June 30, 2023 (66.59% on December 31, 2022).

 

The TIM group (“Group”) comprises TIM and its associated company I-Systems.

 

The Company holds an authorization for Landline Switched Telephone Service (“STFC”) in Local, National Long-Distance and International Long-Distance modes, as well as Personal Mobile Service (“SMP”) and Multimedia Communication Service (“SCM”), in all Brazilian states and in the Federal District.

 

The Company’s shares are traded on B3 – Brasil, Bolsa, Balcão (“B3”). Additionally, TIM has American Depositary Receipts (ADRs), Level II, traded on the New York Stock Exchange (NYSE) – USA. As a result, the company is subject to the rules of the Securities and Exchange Commission (“CVM”) and the Securities and Exchange Commission (“SEC”). To comply with good market practices, the company adopts as a principle the simultaneous disclosure of its financial information in both markets, in reais, in Portuguese and English.

 

As of June 30, 2023, TIM holds a 49% equity interest (49% as of December 31, 2022) in the company I-Systems (associate), formerly FiberCo Soluções de Infraestrutura S.A. (“FiberCo”), and held 100% on December 31, 2022 in the company Cozani RJ Infraestrutura e Rede de Telecomunicações S.A. (“Cozani”) - subsidiary. Considering that the merger and the consequent extinction of Cozani became effective, for all purposes and effects, on April 1, 2023, consequently, TIM S.A. has no ownership interest at Cozani on June 30, 2023.

 

 

1.2. Corporate Reorganization

 

1.2.1. Business combination - Cozani

 

On April 14, 2022, TIM, Telefônica Brasil S.A. and Claro S.A. (“Buyers”) delivered to Oi Móvel S.A. – Under court-ordered reorganization (“Seller”, “Assignor” or “Oi Móvel”) the closing notification regarding the process of acquisition of the Seller’s mobile assets, based on the approvals by the Administrative Council for Economic Defense (CADE), upon signature of an Agreement on Control of Concentrations, whose decision has already become final and unappealable, and by the National Telecommunications Agency (ANATEL), particularly with the publication of Acts 4.949/2022, 4.950/2022 and 4.951/2022, in addition to meeting or waived by the Buyers, as the case may be, all precedent contractual conditions.

 

39 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

On April 20, 2022, TIM S.A., together with the Buyer companies, after complying with the previous conditions established by CADE and ANATEL, concluded the acquisition transaction, with TIM, which currently holds 100% of the share capital of Cozani, a company that corresponds to the part of the unit of assets, rights and obligations of Oi Móvel acquired by Company.

 

On July 5, 2022, TIM and Oi Móvel signed a Letter of Intent to guarantee the maintenance and continuity of the mobile services provided at the Comandante Ferraz Antarctic Station (EACF) until the end of the term on February 21, 2024 of Cooperation Agreement 12.000/2019-001/00, signed on February 21, 2019 by the Federal Government, through the Navy Command, and by Telemar Norte Leste and Oi Móvel at the time. The signing arrangements for the First Amendment to said Cooperation Agreement, which formalizes the result of said negotiations, were concluded on December 9, 2022. On June 6, 2023, through Order 115/2023/COGE/SCO, Anatel certified the fulfillment of said determination.

 

On August 15, 2022, TIM signed the Radiofrequency Availability Agreement with Oi to allow Oi to meet the targets for the implementation of fixed wireless access systems provided for in the General Plan of Universalization Targets for the Universalization of the Switched Fixed Telephone Service Provided in the Public Regime (PGMU-IV), approved by Decree 9619/2018. The purpose of such agreement, as provided for by ANATEL, is to enable the continuity of the targets already achieved, and the fulfillment of non-complied and enforceable targets. The agreement is effective until the end of Oi’s STFC concession on December 31, 2025, and is registered as the service becomes available.

 

On October 20, 2022, TIM published Offers aimed at enabling the execution of an Industrial Network Exploration Agreement (“Offer – Industrial Network Exploration”) and Temporary and Onerous Assignment of Rights of Use of Radiofrequency (“Offer – Radiofrequency”), under the terms defined by the ACC (Agreement on Control of Concentrations) signed with CADE. The offers in question were published on TIM’s website and presented to CADE on the same date, within the period established by the ACC (up to 6 months from Closing), and should be available for 36 months.

 

On December 20, 2022, TIM published offers intended to enable the signing of a Contract for the Temporary and Onerous Assignment of Rights of Use of the 900 MHz Radiofrequency, having as its object the radio frequencies acquired from Oi Móvel in said frequency band (“Offer – 900 MHz Radiofrequency”) under the terms set forth by the ACC entered into with CADE. The ACC is waiting a certificate of compliance from CADE. The offers in question were published on TIM’s website and presented to CADE on the same date, within the period established by the ACC (up to 8 months from Closing), and should be available for 36 months.

 

The ACC is waiting a certificate of compliance from CADE.

 

On June 30, 2023, the total consideration recorded for the acquisition of Cozani was R$ 7,211.6 million.

 

Considering the agreed purchase amounts, we have the following balances recorded as contractual obligations on June 30, 2023:

 

 

(i)The amount of R$ 634.3 million reais was withheld by TIM, as provided for in the purchase agreement, mainly to meet the possible need for additional price adjustments to be made, which could be identified in the 120 days after the acquisition date. According to the material fact disclosed on September 19, 2022, as a result of the differences found in the assumptions for calculating the topics: (i) Working Capital and Net Debt, (ii) Capex and (iii) Net Additions, the amount of R$ 634.3 million, (R$ 712 million updated on June 30, 2023) remained fully retained by the Company until the date of October 4, 2022, that the preliminary decision was handed down by the 7th Business Court of the Judicial District of Rio de Janeiro determining the deposit in court by the Buyers, with TIM being responsible for depositing the updated amount up to that date of R$ 670 million in an account linked to the court-ordered reorganization process of Oi Móvel S.A. Said deposit will remain in an account linked to the Court pending the installation of the Court of Arbitration. For further details, see Note 11;

 

40 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

(ii)The amount of R$ 77 million recognized as contingent consideration, as of the reporting date of this financial information, is pending payment, awaiting the outcome of the arbitration decision.

 

On June 30, 2023, both obligations reached the total amount of R$ 748 million (R$ 748 million on December 31, 2022).

 

TIM also paid, on April 20, 2022, on behalf of SPE Cozani, the amount of R$ 250.7 million to the Seller, as remuneration, for up to 12 months of service provision in the transition phase, recorded under “Prepaid expenses” and signed an annual contract term for the use of transport infrastructure capacity with Brasil Telecom Comunicação Multimídia S.A., involving the payment of decreasing amounts which, at present value, total approximately R$ 476 million.

 

Identifiable assets acquired and liabilities assumed

 

On December 31, 2022, the fair value of the identifiable assets acquired and liabilities assumed from Cozani on the date of acquisition by TIM S.A. is finalized, according to the purchase price allocation report (“Price purchase allocation”). On this date, the analysis indicates assets and liabilities presented below:

 

    Fair values recognized on acquisition

Assets

 

    
Cash and cash equivalents   193,382
Trade accounts receivable   362,379
Prepaid expenses   165,111
Recoverable taxes   13,535
Deferred income tax and social contribution   705,388
Property, plant and equipment (Note 15)   3,518,477
Intangible assets (Note 16)   3,599,811
    8,558,083

 

 

 

 

 

    

 

Liabilities

    
Suppliers   (183,227)
Lease liabilities (Note 17)   (2,929,449)
Taxes payable   (157,595)
Deferred revenues   (95,135)
Other liabilities   (617,518)
    (3,982,924)

 

 

Total net identifiable assets at fair value 4,575,159
Goodwill on acquisition (Note 16)                                                                                                     2,636,426
Total consideration 7,211,585

 

 

 

41 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

The assets acquired and liabilities assumed related to Cozani (“net assets”) by TIM on the acquisition date and the impacts on the Company’s consolidated results, which reflect the results of the Company acquired as of April 30, 2022, are summarized below:

 

Cozani

 

Equity interest of the acquiree 100%
Shareholders’ equity of Cozani at book value on 04/30/2022 1,282,579
Shareholders’ equity of Cozani at fair value on 04/30/2022 4,575,159
 Surplus of radio frequencies (i) 3,038,951
 Surplus of customers’ portfolio (ii) 253,629
   
Contribution to the net revenue Group as of the date of acquisition until 12/31/2022 1,231,518
Contribution to the Group with loss since the acquisition date until 12/31/2022 (626,258)
Net revenue of acquiree in the year 2022 2,297,351
Loss of the acquiree in the year 2022 (1,910,638)

 

 

(i)The intangible asset value refers to the adjustment in the authorizations item reflecting the fair value of the acquired grants and the spectrum assessment was carried out using the market approach, with the application of a transaction multiple. The average useful life is 17.68 years;

 

(ii)The evaluation of the customer portfolio was conducted using the profitability approach, using the MPEEM (Multi-period excess earning method) method based on a calculation of cash flows from future economic benefits attributable to the customer base. The average useful life is 7.67 years.

 

The goodwill paid of R$ 2,636,426 comprises the value of future economic benefits arising from synergies expected from the acquisition. The recognized goodwill has already been deducted for tax purposes since the date of the corporate acquisition of the company Cozani by TIM S.A., which took place on April 1, 2023.

 

Merger of Cozani

 

According to the Material Fact disclosed by the Company on February 27, 2023, the completion of the Merger would still depend on the conclusion of the operational procedures related to the systemic parameterization and obtaining prior consent from ANATEL, which took place when the Act 3532/2023 was published.

 

On March 31, 2023, the Board of Directors (“BoD”) acknowledged the obtaining of said consent and verified compliance with the other conditions to grant full effectiveness to the Merger. Accordingly, the BoD declared that said Merger and the consequent extinction of Cozani became effective, for all purposes and effects, on April 1, 2023. The approved Acquisition did not give rise to a capital increase, nor issue of new shares of the Company, or changes in the Company’s shareholding, therefore, there is no need to talk about exchange of shares or right to withdraw.

 

The purpose of this acquisition is to streamline the corporate structure of TIM S.A., eliminate overlapping authorizations for exploring the SMP service, standardize the services provided by the Companies, and also, as a result, concentrate activities related to the provision of personal mobile telecommunication services in a single company, in addition to optimize operating costs and efficiently allocate investments due to the integration of acquired assets.

 

42 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

The changes in Cozani’s equity between the date of the report (December 31, 2022) and the merger (April 1, 2023) were incorporated into the balance sheet of TIM Participações S.A., as set forth in the protocol of merger. As a result of the merger, all operations of Cozani were transferred to TIM S.A., which succeeded it in all its assets, rights and obligations, universally and for all purposes of law.

 

The net assets as of December 31, 2022, is summarized below:

 

 

Assets     Liabilities  
Current 1,376,107   Current 1,900,283
Non-current 3,987,996   Non-current 2,422,684
   Long-term receivables 846,823      
   Property, plant and equipment 2,885,893      
   Intangible assets 255,280      
      Net assets 1,041,136
Total assets 5,364,103   Total liabilities 5,364,103

 

2.Preparation basis and presentation of individual and consolidated quarterly information

 

The individual and consolidated quarterly information was prepared and is being presented according to the accounting practices adopted in Brazil, which comprises the CVM standards and pronouncements, guidance and interpretations issued by the Accounting Pronouncement Committee (“CPC”) and in compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

 

Additionally, the Company considered the guidelines provided for in Technical Guideline OCPC 07 - Evidencing upon Disclosure of General Purpose Financial-Accounting Reports in the preparation of its quarterly information. In this way, the relevant information specific to the quarterly information is being evidenced and correspond to those used by the management in its duties.

 

The main accounting policies applied in the preparation of this quarterly information are defined below and / or presented in their respective notes. Those policies were consistently applied in the years presented.

 

 

a. General criteria for preparation and disclosure

 

The individual and consolidated quarterly information was prepared considering the historical cost as value basis and financial assets and liabilities (including derivative financial instruments) measured at fair value.

 

Assets and liabilities are classified according to their degree of liquidity and collectability. They are reported as current when they are likely to be realized or settled over the next 12 months. Otherwise, they are recorded as non-current. The exception to this procedure involves deferred income tax and social contribution balances (assets and liabilities) and provision for lawsuits and administrative proceedings that are fully classified as non-current.

 

On June 30, 2023, the Company reported a profit of R$ 1,038,908. The Company’s current liabilities exceeded total current assets by R$ 3,980,316, caused by the acquisition of Cozani and payment of obligations related to the 5G license. The Company understands that the aforementioned investments will bring relevant benefits and operational efficiency. On June 30, 2023, the Company’s shareholders’ equity is positive by R$ 25,327,084.

 

43 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

In connection with the preparation of this quarterly information, Company’s Management made analyses which confirms that the operating cash flow is positive; therefore, there is no evidence of uncertainties about the going concern.

 

The presentation of Statement of Value Added (Demonstração do Valor Adicionado – “DVA”) is required by the Brazilian Corporate Legislation and accounting practices adopted in Brazil applicable to listed companies. The DVA was prepared according to the criteria set forth in CPC Technical Pronouncement No. 09 - “Statement of Value Added”. IFRS does not require the presentation of this statement. As a consequence, according to the IFRS, this statement is presented as supplementary information, without affecting the quarterly information.

 

Interests paid are classified as financing cash flow in the statement of cash flows as it represents costs of obtaining financial resources.

 

 

b. Functional and presentation currency

 

The currency of presentation of the quarterly information is the Real (R$), which is also the functional currency of the Company, its associated company and subsidiary.

 

Foreign currency transactions are recognized at the exchange rate on the date of the transaction. Monetary items in foreign currency are translated into Brazilian reais at the foreign exchange rate prevailing on the balance sheet date, informed by the Central Bank of Brazil. Foreign exchange gains and losses linked to these items are recorded in the statement of income.

 

c.Segment information

 

Operating segments are components of the entity that carry out business activities from which revenues can be obtained and expenses incurred. Its operating results are regularly reviewed by the entity's main operations manager, who makes decisions on resource allocation and evaluates segment performance. For the segment to exist, individualized financial information is required.

 

The main operational decision maker in the Company, responsible for the allocation of resources and periodically evaluating performance, is the Executive Board, which, along with the Board of Directors, are responsible for making the strategic decisions of the company and its management.

 

The Group's strategy is focused on optimizing results, and all the operating activities of the Group are concentrated in TIM and its subsidiary Cozani. Although there are diverse activities, decision makers understand that the company represents only one business segment and do not contemplate specific strategies focused only on one service line. All decisions regarding strategic, financial planning, purchases, investments and investment of resources are made on a consolidated basis. The aim is to maximize the consolidated result obtained by operating the SMP, STFC and SCM licenses.

 

d.Consolidation procedures

 

Subsidiaries are all the entities in which the Group retains control. The Group controls an entity when it is exposed to, or has a right over the variable returns arising from its involvement with the entity and has the ability to interfere in those returns due to its power over the entity. The subsidiaries are fully consolidated as of the date control is transferred to the Group. Consolidation is interrupted beginning as of the date in which the Group no longer holds control.

 

44 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

If the Group loses control exercised over a subsidiary, the corresponding assets (including any goodwill) and liabilities of the subsidiary are written-off at their book values on the date the control is lost, and the write-off of the book value of any non-controlling interests on the date when control is lost (including any components of other comprehensive income attributed to them) also occurs. Any resulting difference as a gain or loss is recorded in income (loss). Any retained investment is recognized at its fair value on the date control is lost.

 

Due to the merger of Cozani on April 01, 2023 described in Note 1, the Company incorporated all asset and liability balances of its former parent company and presents consolidated balances for the statements of income, statements of comprehensive income, statements of cash flows and statements of value added due to Cozani’s individual statements of income for the period January−March 2023 making up the consolidated balances throughout 2023.

 

e.Business combination and goodwill

 

Business combinations are accounted for under the acquisition method. The cost of an acquisition is measured for the consideration amount transferred, which is valuated on fair value basis on the acquisition date, including the value of any non-controlling interest in the acquiree, regardless of their proportion. For each business combination, the buyer must measure the non-controlling interest in the acquired business at the fair value of based on its interest in the net assets identified in the acquired business. Costs directly attributable to the acquisition are accounted for as expense when incurred.

 

The purchase accounting method is used to record the acquisition of subsidiaries by the Group. The acquisition cost is measured as the fair value of the assets acquired, equity instruments (i.e.: shares) and liabilities incurred or assumed by the acquirer on the date of the change of control. Identifiable assets acquired, contingencies and liabilities assumed in a business combination are initially measured at fair value on the date of acquisition, regardless of the proportion of any minority interest. The portion exceeding the transferred consideration of the Company's interest in the acquired identifiable net assets, is recorded as goodwill. Should the consideration transferred be less than the fair value of the net assets of the acquired subsidiary, the difference is recognized directly in the statement of income as a revenue once concepts and calculations applied are reviewed.

 

On acquiring a business, the Group assesses the financial assets and liabilities assumed in order to rate and to allocate them in accordance with contractual terms, economic circumstances and pertinent conditions on the acquisition date, which includes segregation by the acquired entity of built-in derivatives existing in the acquired entity’s host contracts.

 

Any contingent payments to be transferred by the acquiree will be recognized at fair value on the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability should be recognized in accordance with CPC 48 in the statement of income.

 

Initially, goodwill is initially measured as being the excess of consideration transferred in relation to net assets acquired (acquired identifiable assets and assumed liabilities) measured at fair value on acquisition date. If consideration is lower than fair value of net assets acquired, the difference must be recognized as gain in bargain purchase in the statement of income on the acquisition date.

 

After initial recognition, the goodwill is carried at cost less any accumulated loss for the impairment losses. For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each cash-generating units of the Group that are expected to benefit by the synergies of combination, regardless of other assets or liabilities of the acquiree being allocated to those units.

 

45 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

When the goodwill is part of a cash generating unit and a portion of this unit is disposed of, the premium associated with the disposed portion should be included in the cost of the operation when calculating gains or losses in the disposal. The goodwill disposed under these circumstances of this operation is determined based on the proportional values of the portion disposed of, in relation to the cash generating unit maintained.

 

The Group measures the lease liabilities assumed at the present value of the remaining payments as if the lease agreement acquired were a new lease agreement at the acquisition date. Right-of-use assets were measured at an amount equivalent to the lease liabilities and adjusted to reflect the favorable or unfavorable terms of these leases compared to market terms. Considering that the off-market nature of said lease is reflected in the right-of-use asset, the Group does not recognize separately an intangible asset or liability relating to favorable or unfavorable terms in relation to market value.

 

f.Approval of quarterly information

 

This individual and consolidated quarterly information was approved by the Company's Board of Directors on July 31, 2023.

 

 

g.New standards, ammendments and interpretations of standards

 

The following new standards/amendments were issued by the Accounting Pronouncement Committee (“CPC”) and International Accounting Standards Board (IASB), are effective for the year ended June 30, 2023.

 

Amendments to CPC 37 (R1), CPC 48, CPC 29, CPC 27, CPC 25 and CPC 15 (R1).

 

The amendments to the above pronouncements are due to the annual changes related to the cycle of improvements between 2018 and 2020, such as:

 

•Onerous Contracts – Cost of Fulfilling a Contract;
•Property, Plant and Equipment – Proceeds before Intended Use; and
•References to Conceptual framework.

 

The validity of these proposed changes must be established by regulatory agencies that approve them and to fully comply with international accounting standards, the entity must apply them in annual periods beginning on or after January 01, 2022.

 

Onerous Contracts – Cost of Fulfilling a Contract

 

An onerous contract is a contract under which the unavoidable costs of fulfilling the obligations arising from the contract (i.e., costs that the Group cannot avoid since it has the contract) exceed the expected economic benefits to be received.

 

The amendments specify that, when assessing whether a contract is onerous or loss-making, an entity needs to include costs that directly relate to a contract to supply goods or services, including incremental costs (for example, direct labor costs and materials) and an allocation of costs directly related to contract activities (for example, depreciation of equipment used to fulfill the contract and costs of managing and supervising the contract). General and administrative costs are not directly related to a contract and are excluded unless explicitly charged to the counterparty under the terms of the contract.

 

46 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

The Group evaluated the contracts and did not identify material changes in the quarterly information.

 

 

Property, Plant and Equipment – Proceeds before Intended Use;

 

The amendment precludes entities from deducting from the cost of a property, plant and equipment item any proceeds from sales of produced items in bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the products of selling the items, and the costs of producing the items, in the statement of income.

 

Under the transition rules, the Group applies the amendments retrospectively only to property, plant and equipment items available for use or after the beginning of the earliest period presented when the entity first applies the amendment (the date of first-time adoption).

 

These changes had no impact on the Group’s individual and consolidated quarterly information as there were no sales of such items produced by property, plant and equipment made available for use or after the beginning of the earliest period presented.

 

References to the Conceptual Framework

 

The amendments replace a reference to an earlier version of the IASB Conceptual Framework with a reference to the current version issued in March 2018, without materially changing its requirements.

 

The amendments add an exception to the recognition principle of IFRS 3/CPC 15 (R1) Business Combinations to avoid issuing potential ‘day 2’ gains or losses arising from liabilities and contingent liabilities that would be within the scope of IAS 37/CPC 25 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies, if incurred separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, rather than the Conceptual Framework, to determine whether a present obligation exists at the acquisition date.

The amendments also add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition on the acquisition date.

Pursuant to the interim provisions, the Group applies the amendments prospectively, i.e., for business combinations that occur after the start of the annual reporting period in which it first applies the amendments (the date of first-time adoption).

These changes had no impact on the Group’s consolidated quarterly information since there were no assets, liabilities or contingent liabilities within the scope of these changes that arose during the period.

 

 

 

47 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

IFRS 1 First-time Adoption of International Financial Reporting Standards - Subsidiary as first-time adopter

 

The amendment allows a subsidiary that chooses to apply paragraph D16(a) of IFRS 1/CPC 37 (R1) - First-time Adoption of International Accounting Standards to measure cumulative translation differences using the amounts reported in the consolidated quarterly information of the parent company, based on the parent company’s transition date to IFRS, if no adjustments have been made for consolidation procedures and for the effects of the business combination in which the parent company acquired the subsidiary. This amendment also applies to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1.

These changes had no impact on the Group’s consolidated quarterly information as it is not a first-time adopter.

 

 

IFRS 9/CPC 48 Financial Instruments - Rates in the ’10 percent’ test for writing-off financial liabilities

 

The amendment clarifies the rates that an entity includes when assessing whether the terms of a new or modified financial liability are materially different from the terms of the original financial liability. These rates include only rates paid or received between the borrower and the lender, including rates paid or received by the borrower or the lender on behalf of the other.

 

In accordance with the interim provisions, the Group applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment (the date of first-time adoption). These changes had no impact on the Group’s consolidated quarterly information, as there were no changes to the Group’s financial instruments during the period.

 

 

The following new standards were issued by Comitê de Pronunciamentos Contábeis [Accounting pronouncements committee] (CPC) and the International Accounting Standards Board (IASB), but are not in effect for the period ended on June 30, 2023.

 

·Amendments to IAS 1: Classification of Liabilities as Current or Non-current (equivalent to revision 20 of the Accounting Pronouncements Committee)

 

In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1, related to CPC 26, aiming to specify the requirements for classifying the liabilities as current or non-current. The changes enlighten:

 

•What is the meaning of a right to defer the settlement;

 

•That the right to postpone settlement must exist on the base date of the report;

 

•That this classification is not affected by the likelihood that an entity will exercise its right to postpone settlement

 

•That the terms of a liability would not affect its classification only if a derivative embedded in a convertible liability was an equity instrument

 

Amendments are valid for periods started on January 1, 2023 and must be applied on a retrospective basis. The Group currently assesses the impact that the changes will have on current practice and whether existing loan agreements may require renegotiation.

 

 

 

48 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

·Amendments to IAS 8: Definition of Accounting Estimates

(equivalent to revision 20 of the Accounting Pronouncements Committee)

 

In February 2021, IASB issued amendments to IAS 8/CPC 23, in which the definition of ‘accounting estimates’ is introduced. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and correction of errors. In addition, they clarify how entities use measurement and input techniques to develop accounting estimates.

 

The amendments will be effective for periods beginning on or after January 1, 2023, and will apply to changes in accounting policies and estimates that occur on or after the beginning of that period. If disclosed, early adoption is allowed.

 

Amendments are not expected to have a significant impact on the Group’s financial statements.

 

·Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies (equivalent to revision 20 of the Accounting Pronouncements Committee)

 

In February 2021, IASB issued amendments to IAS 1/CPC 26 (R1)) and IFRS Practice Statement 2 Making Materiality Judgments, in which guides and examples are provided to help entities to apply materiality judgment to the disclosure of accounting policies. The aim of amendments is to assist entities in the disclosure of accounting policies that are most useful by replacing the requirement for disclosure of significant accounting policies to material accounting policies and adding guides about how entities should apply the concept of materiality to make decisions about the disclosure of accounting policies.

 

The amendments to IAS 1 are applicable for periods started as of or after January 1, 2023, with early adoption allowed. Since the amendments to Practice Statement 2 provide non-mandatory guides about the application of material definition to the accounting policy information, an adoption date is not required for this amendment.

 

The Group is currently revisiting the accounting policy disclosures to confirm that they are consistent with the required changes.

 

·Amendments to IAS 12: Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (equivalent to the Committee’s revision 20 of accounting pronouncements)

 

In May 2021, the Board released amendments to IAS 12, which narrow the scope of the initial recognition exception under IAS 12 so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences.

The amendments shall apply to transactions occurring in annual periods beginning on or after the earliest comparative period presented. Furthermore, at the beginning of the earliest comparative period presented, a deferred tax asset (provided there is sufficient taxable profit available) and a deferred tax liability must also be recognized for all deductible and taxable temporary differences associated with leases and decommissioning obligations.

The Group is currently assessing the impact of these changes.

 

 

 

49 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

3.Estimates and areas where judgment is significant in the application of the Company's accounting policies

 

Accounting estimates and judgments are continuously assessed. They are based on the Company's historical experience and on other factors, such as expectations of future events, considering the circumstances present on the base date of quarterly information.

 

By definition, the resulting accounting estimates will rarely be the same as the actual results. The estimates and assumptions that present a significant risk, with the probability of causing a material adjustment to the book values of assets and liabilities for the fiscal period, are covered below.

 

(a)       Impairment loss on non-financial assets and investments in subsidiary and associated company.

 

Impairment losses occur when book value of an asset or cash generating unit exceeds its recoverable value, which is the highest of fair value less selling costs and value in use. Calculation of fair value less selling costs is based on information available on similar assets’ selling transactions or market prices less additional costs to dispose of the asset. The calculation of value in use is based on the discounted cash flow model.

 

Any reorganization activities with which the Company is not committed to on the reporting date of the quarterly information or significant future investments that could improve the asset base of the cash generating unit under test are excluded for impairment testing purposes.

 

The main non-financial assets for which this assessment was made are goodwill recorded by the Company (Note 16) and its tangible and intangible assets.

 

Net investments in the subsidiary and associated company are valued after applying the equity method to determine whether there is any objective evidence of impairment. The recoverable amount of an investment in an associated company must be determined for each investment, unless the associated company does not generate cash inflows on an ongoing basis that are largely independent of those generated by the entity’s other assets. The investment in an associated company was valued as described in Note 14.

 

(b)       Income tax and social contribution (current and deferred)

 

Income tax and social contribution (current and deferred) are calculated according to interpretations of current legislation and CPC 32 / IAS 12. This process typically involves complex estimates to determine taxable income and temporary differences. In particular, the deferred assets on tax losses, negative basis of social contribution and temporary differences is recognized in proportion to the probability that future taxable income is available and can be used. The measurement of the recoverability of deferred income tax on tax losses, negative basis of social contribution and temporary differences takes the history of taxable income into account, as well as the estimate of future taxable income (note 8.c).

 

(c)       Provision for legal and administrative proceedings

 

The legal and administrative proceedings are analyzed by the Management along with its legal advisors (internal and external). The Company considers factors in its analysis such as hierarchy of laws, precedents available, recent court judgments, their relevance in the legal system and payment history. These assessments involve Management’s judgment (note 24).

 

(d)       Fair value of derivatives and other financial instruments

 

The financial instruments presented in the balance sheet at fair value are measured using valuation techniques that consider observable data or observable data derived from market (note 37).

 

 

50 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

(e)       Unbilled revenues

 

Since some cut dates for billing occur at intermediate dates within the months of the year, as the end of each month there are revenues earned by the Company, but not actually invoiced to its customers. These unbilled revenues are recorded based on estimate that takes into consideration historical consumption data, number of days elapsed since the last billing date, among others (note 28).

 

 

(f)       Leases

 

The Company has a significant number of the lease contracts in which it acts a lessee (Note 17), and with the adoption of the accounting standard IFRS 16 / CPC 06 (R2) – Leases, on January 1, 2019, certain judgments were exercised by Company’s management in measuring lease liabilities and right-of-use assets, such as: (i) estimate of the lease term, considering non-cancellable period and the period covered by options to extend the contract term, when the exercise depends only from the Company, and this exercise is reasonably certain; and (ii) using certain assumptions to calculate the discount rate.

 

The company is not able to readily determine the interest rate implicit on the lease and, therefore, considers its incremental rate on loans to measure lease liabilities. Incremental rate on the lessee’s loan is the interest rate that the lessee would have to pay when borrowing, for a similar term and with a similar guarantee, the resources necessary to obtain the asset with a value similar to the right of use asset in a similar economic environment. The company estimates the incremental rate using observable data (such as market interest rates) when available and considers aspects that are specific to the Company (such as the cost of debt) in this estimate.

 

(g)       Fair value of the intangible assets

 

 

Intangible assets are measured at historical cost less accumulated amortization and impairment losses.

 

The cost of intangible assets acquired in a business combination corresponds to their fair value at acquisition date. After the initial recognition, the intangible assets are stated at cost, less accumulated amortization and impairment losses.

 

 

(h)       Business combination

 

Business combinations are accounted for under the acquisition method. The cost of an acquisition is measured for the consideration amount transferred, which is valuated on fair value basis on the acquisition date, including the value of any non-controlling interest in the acquiree, regardless of their proportion. For each business combination, the buyer must measure the non-controlling interest in the acquired business at the fair value of based on its interest in the net assets identified in the acquired business. Costs directly attributable to the acquisition are accounted for as expense when incurred. For further information, see Notes 1.2.1 and 2.e.

 

 

 

51 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

4.Cash and cash equivalents

 

They are financial assets measured at amortized cost using the effective interest rate method.

 

The Company’s Management determines the classification of its financial assets upon initial recognition.

 

    Parent Company   Consolidated
    June 2023   December 2022   December 2022
             
  Cash and banks   27,470   59,679   59,959
  Free availability financial investments:            
     CDBs / Repurchases   3,039,542   1,725,421   2,488,754
             
    3,067,012   1,785,100   2,548,713

 

Bank certificates of deposit (“CDBs”) and committed transactions are nominative securities issued by banks and sold to the public as a form of fund raising. Such securities may be traded during the contracted term, at any time, without significant loss in their value and are used for the fulfilment of short-term obligations by the company.

 

The average remuneration of CDB investments in 2023 is 102.05% p.a. (100.12% on December 31, 2022) of the variation of the interbank deposit certificate – CDI.

5.Securities

 

Comprise financial assets measured at fair value through profit or loss.

 

    Parent Company   Consolidated
    June 2023   December 2022   December 2022
             
FUNCINE (i)   13,444   12,929   12,929
Fundo Soberano (ii)   116   179   179
FIC: (iii)            
   Government bonds (a)   147,939   1,323,409   1,323,409
   CDB (b)   7,292   20,371   20,371
   Financial bills (c)   50,845   398,879   398,879
   Other (d)   65,415   447,797   447,797
    285,051   2,203,564   2,203,564
             
Current portion   (271,607)   (2,190,635)   (2,190,635)
Non-current portion   13,444   12,929   12,929

 

 

Due to the scenario of severe stress observed recently in the securities’ market, the Company opted to reduce its position in funds, migrating a large part of the funds to fixed income operations (Bank Deposit Certificates - CDBs) with first-class banks.

 

(i)As of December 2017, the Company, with the aim of using tax deductibility benefit for income tax purposes, started investing in the National Film Industry Financing Fund (FUNCINE). The average remuneration in 2023 was 0.68% p.a. (0.09% p.a. in 2022).

 

 

52 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

(ii) Fundo Soberano is composed only of federal government bonds. The average remuneration in 2023 was 99.60% p.a. of the variation of the Interbank Deposit Certificate - CDI (99.94% on December 31, 2022).

 

(iii) The Company invests in open FIC's (Quota Investment Fund). Funds are mostly made up of federal government bonds and papers from financial institutions, mostly AAA (highest quality). The average remuneration of FICs in 2023 was 95.81% p.a. of the variation of the Interbank Deposit Certificate - CDI (107.19% p.a. on December 31, 2022).

 

(a) Government bonds are fixed income financial instruments issued by the National Treasury to finance the activities of the Federal Government.

 

(b) The CDB operations are emitted by the banks with the commitment of stock buyback by the bank itself and with predetermined taxes.

 

(c) The Financial bills is a fix income tittle emitted by financial institutions with the objective of a long-term fund raising.

 

(d) Is represented by: Debentures, FIDC, commercial notes, promissory notes, bank credit note.

6.Trade accounts receivable

 

These are financial assets measured at amortized cost, and refer to accounts receivable from users of telecommunications services, from network use (interconnection) and from sales of handsets and accessories. Accounts receivable are recorded at the price charged at the time of the transaction. The balances of accounts receivable also include services provided and not billed (“unbilled”) up to the balance sheet date. Trade accounts receivable are initially recognized at fair value and, subsequently, measured at amortized cost using the effective interest rate method less provision for expected credit losses (“impairment”).

 

The provision for expected credit losses was recognized as a reduction in accounts receivable based on the profile of the subscriber portfolio, the aging of overdue accounts receivable, the economic situation, the risks involved in each case and the collection curve, at an amount deemed sufficient by Management, as adjusted to reflect current and prospective information on macroeconomic factors that affect the customers’ ability to settle the receivables.

 

The fair value of trade accounts receivable is close to the book value recorded on June 30, 2023 and December 31, 2022.

 

The average rate considered in calculating the present value of accounts receivable recorded in the long term is 0.58% p.m. (0.58% p.m. on December 31, 2022).

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
Trade accounts receivable 3,804,006   3,978,135   3,659,777
           
Gross accounts receivables 4,414,330   4,540,225   4,241,515
           
Billed services 2,208,469   2,055,009   2,149,579
Unbilled services 981,560   909,760   929,669
Network use (interconexion) 650,768   981,978   550,416
Goods sold 556,152   572,103   590,476
Contractual assets (note 23) 17,053   19,828   19,828
Other accounts receivable 328   1,547   1,547
           
Provision for expected credit losses (610,324)   (562,090)   (581,738)
           
Current portion (3,567,703)   (3,739,452)   (3,421,094)
Non-current portion 236,303   238,683   238,683

 

 

53 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

The movement of the provision for expected credit losses, accounted for as an asset reduction account, was as follows:

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
  (6 months)   (12 months)   (12 months)
           
Opening balance 562,090   746,819   746,819
Balance of merged company 23,737   -   -
Supplement to expected losses 286,767   585,699   626,218
Write-off of provision (262,270)   (770,428)   (791,299)
           
Closing balance 610,324   562,090   581,738

 

 

In 2022, the change in the closing balance of the provision for expected credit losses occurred due to the supplement to expected losses, net of reversal and write-off of already accrued invoices.

 

The aging of accounts receivable is as follows:

 

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Total 4,414,330   4,540,225   4,241,515
           
Falling due 3,194,545   3,575,228   3,221,416
Overdue (days):          
  ≤30 340,373   262,644   286,324
  ≤60 121,107   81,939   82,533
  ≤90 106,583   68,391   73,581
  >90 651,722   552,023   577,661

 

 

7.Inventory

 

Inventories are presented at the average acquisition cost. A loss is recognized to adjust the cost of Handsets and accessories to the net realizable value (selling price), when this value is less than the average acquisition cost.

 

 

54 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Total inventory 374,429   236,117   236,117
           
Inventory 391,213   248,768   248,768
Mobile handsets and tablets 257,022   138,951   138,951
Accessories and prepaid cards 101,153   78,330   78,330
TIM chips 33,038   31,487   31,487
           
Losses on adjustment to realizable amount (16,784)   (12,651)   (12,651)

 

 

8.Income tax and social contribution
8.aRecoverable income tax and social contribution

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Recoverable income tax and social contribution 1,001,611   879,227   879,227
           
Income tax    708,472   645,192   645,192
Social contribution  293,139   234,035   234,035
           
Current portion (166,575)   (361,349)   (361,349)
Non-current portion 835,036   517,878   517,878

 

In September 2021, the Federal Supreme Court (STF), with general repercussions, established an understanding for the non-levy of Corporate Income Tax (IRPJ) and Social Contribution (CSLL) on the monetary restatement using the SELIC rate in cases of undue payment. The specific TIM lawsuit is still pending judgment, TIM recorded its best estimate to date, in the amount of R$ 535 million (principal). In 2021, R$ 11 million was recognized as inflation adjustment. In 2022, R$ 61 million was recognized as inflation adjustment. In 2023, R$ 28 million was recognized as inflation adjustment. Totaling R$ 635 million, recorded in non-current assets, since the realization of the gain by the Company becomes probable. The Company is awaiting the final decision.

8.bIncome tax and social contribution payable

 

 

Current income tax and social contribution charges are calculated on the basis of the tax laws enacted, or substantially enacted, up to the balance sheet date.

 

The legislation allows companies to opt for quarterly or monthly payment of income tax and social contribution. In 2023 the company has chosen to make the monthly payment of income tax and social contribution.

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Income and social contribution tax payable 47,084   78,351   78,351
           
Income tax -   34,207   34,207
Social contribution 47,084   44,144   44,144
           
Current portion (47,084)   (78,351)   (78,351)

 

 

55 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

8.c Deferred income tax and social contribution

 

Deferred income tax and social contribution are recognized on (1) tax losses and accumulated tax loss carryforwards; and (2) temporary differences arising from differences between the tax basis of assets and liabilities and their book values in the quarterly information. Deferred income tax is determined using the tax rates (and tax laws) enacted, or substantially enacted, up to the balance sheet date. Subsequent changes in tax rates or tax legislation may modify the deferred tax credit and debit balances.

 

Deferred tax assets on income tax and social contribution are recognized only in the event of a profitable track record and/or when the annual forecasts prepared by the Company.

 

The balances of deferred income tax and social contribution assets and liabilities are shown in the balance sheet at their net amounts, when there is both a legal right and an intention to offset them at the time when the current taxes are ascertained, usually in relation to the same legal entity and the same taxation authority. Thus, deferred tax assets and liabilities belonging to different entities are in general shown separately, not at their net amounts.

 

On June 30, 2023 and December 31, 2022, the prevailing tax rates were 25% for income tax and 9% for social contribution. In addition, there is no statute of limitation in regard to the income tax and social contribution carried forward losses, which it can be offset by up to 30% of the taxable profit reached at each fiscal year, according to the current tax legislation.

 

The amounts recorded are as follows:

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Losses carried forward – income tax and social contribution 45,717   95,927   225,882
Temporary differences:          
Provision for legal and administrative proceedings 458,180   381,865   381,865
Provision for expected credit losses 237,487   198,933   220,911
Lease of LT Amazonas infrastructure 35,816   34,657   34,657
Profit sharing 32,869   49,989   49,989
Taxes with enforceability suspended (i) 830,003   642,479   711,897
Amortized Goodwill – TIM Fiber (ii) (34,560)   (34,560)   (34,560)
Derivative financial instruments (183,476)   (161,174)   (161,174)
Capitalized interest - 4G and 5G (299,271)   (281,468)   (281,468)
Deemed costs – TIM S.A. (27,785)   (32,177)   (32,177)
Adjustments of standard IFRS 16 (iii) 658,759   468,113   596,495
Accelerated depreciation (iv) (812,322)   (663,303)   (715,041)
Fair value adjustment I–Systems (former FiberCo) (v) (249,477)   (249,477)   (249,477)
Impairment loss (vi) 450,469   -   557,932
Amortized Goodwill – Cozani (44,819)   -    
Amortization of surplus 62,697   45,592   45,591
Other 127,123   31,304   146,218
  1,287,410   526,700   1,497,540
           
Deferred income tax and social contribution on tax losses and negative bases not recognized yet -   -   (129,954)
  1.287,410   526,700   1,367,586
           
Deferred active tax portion 2.939.120   1.948.859   2,971,437
Deferred tax liability (1,651,710)   (1,422,159)   (1,603,851)

 

 

56 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

(i) Mainly represented by the Fistel fee (TFF) for the financial years 2020, 2021, 2022 and 2023 of TIM S.A. at a parent company level and, at a consolidated level, the TFF referring to Cozani's 2022 financial year is also added. The Operating Inspection Fee (TFF) for the years 2020, 2021, 2022 and 2023 of TIM S.A. and TFF for 2022 of Cozani had its payments suspended by virtue of an injunction and, therefore, still do not have a specific date for payment. See Note 22 for details.

 

(ii) Represented by the goodwill on the business combination of companies TIM Fiber RJ and SP acquired by TIM in 2012, partially realized in November 2021 after the completion of the transaction for the sale of 51% of the equity interest in I-Systems to IHS.

 

(iii) Represents the addition of new contracts. The temporary difference of the IFRS 16 contracts is due to the difference in the timing of recognition of the accounting and tax expense, under the terms of the current legislation.

 

(iv) As of the 1Q20, TIM S.A. excludes the portion of acceleration of depreciation of movable assets belonging to property, plant and equipment from the calculation basis of the IRPJ and CSLL, due to their uninterrupted use in three operating shifts, supported by technical expert report, as provided for in Article 323 of the RIR/2018, or by the adequacy to the tax depreciation provided for in IN 1700/2017. Such tax adjustment generated a deferred liability of R$ 761 million until June 30, 2023 (R$ 663 million up to December 31, 2022) and applied as of January 1, 2020.

 

(v) Refers to deferred charges on the fair value of the non-controlling interest calculated in the sale of Fiber Co (currently I-Systems), which took place in November 2021, from TIM S.A. to IHS Fiber Brasil - Cessão de Infraestruturas Ltda (see Note 14).

 

(vi) Represents the deferred charges recorded, referring to the impairment of tangible assets.

 

Expectation of recovery of tax credits

 

The estimates of recoverability of tax credits were calculated taking into consideration financial and business assumptions available on June 30, 2023.

 

Based on these projections, the company has the following expectation of recovery of credits:

 

Parent Company

Deferred income tax and

social contribution

 Tax losses and negative basis  

 

Temporary differences

   Total
  2023 45,717   595,602   587,807
  2024 -   213,750   114,959
  2025 -   181,414   103,704
>2026 -   1,902,637   2,132,650
Total               45,717   2,893,403   2,939,120

 

 

57 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

The company based on a history of profitability and based on projections of future taxable results, constitutes deferred income tax credits and social contribution on all of its tax losses, negative social contribution basis and temporary differences.

 

The Company used credits from tax losses and the negative basis of social contribution in the amount of R$ 50,211 throughout 2023 (R$ 123,948 in 2022).

 

8.d Expense with current and deferred income tax and social contribution

 

  Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
Current income tax and social contribution taxes              
Income tax for the period (101,357)   (82,906)   (101,615)   (82,906)
Social contribution for the period (48,516)   (29,132)   (48,611)   (29,132)
Tax incentive – SUDENE/SUDAM (i) 100,155   50,905   100,155   50,905
  (49,718)   (61,133)   (50,071)   (61,133)
Deferred income tax and social contribution              
Deferred income tax (9,248)   (23,547)   (66,911)   4,304
Deferred social contribution 7,492   (8,477)   (13,267)   1,551
  (1,756)   (32,024)   (80,178)   5,855
               
  (51,474)   (93,157)   (130,249)   (55,278)
                 

 

The reconciliation of income tax expense and social contribution calculated by applying the combined tax rates with the values reflected in the result is shown below:

 

  Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
               
Income before income tax and social contribution 1,090,382   778,060   1,169,158   740,181
Combined tax rate 34%   34%   34%   34%
Combined tax rate on income tax and social contribution (370,730)   (264,540)   (397,514)   (251,662)
(Additions) / deletions:              
Equity in earnings 37,981   (42,898)   (14,171)   (7,723)
Permanent additions and exclusions:              
    Non-taxable revenues 11,317   19,053   11,317   19,053
    Non-deductible expenses for tax purposes (10,350)   (11,792)   (10,350)   (11,792)
Tax incentive – SUDENE/SUDAM (i) 100,155   50,905   100,155   50,905
Tax benefit related to interest on shareholders’ equity 176,800   158,100   176,800   158,100
Other amounts 3,353   (1,985)   999   (12,159)
  319,256   171,383   267,264   196,384
Income tax and social contribution recorded in the income (loss) for the period (51,474)   (93,157)   (130,250)   (55,278)
Effective rate 4.72%   11.97%   11.14%   7.47%

(i) As mentioned in note 26 c.3, in order for investment grants not to be computed in taxable income, they must be recorded as a tax incentive reserve, which can only be used to absorb losses or be incorporated into the share capital. The Company has tax benefits that fall under these rules.

 

 

58 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

9.Taxes, fees and contributions to be recovered

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Taxes, fees and contributions to be recovered 1,753,465   1,709,810   1,727,069
           
ICMS (i) 1,405,972   1,314,811   1,323,604
PIS / COFINS (ii) 98,105   194,449   194,452
IRRF (Withholding income tax) on interest earning bank deposits 146,791   111,962   120,417
Other 102,597   88,588   88,596
           
Current portion (748,903)   (820,338)   (831,661)
Non-current portion 1,004,562   889,472   895,408

 

(i) The amounts of recoverable ICMS (state VAT) are mainly comprised by:

 

(a) credits on the acquisition of property, plant and equipment directly related to the provision of telecommunication services (credits divided over 48 months).

 

(b) ICMS amounts paid under the tax substitution regime from goods acquired for resale, mainly mobile handsets, chips, tablets and modems sold by TIM.

(ii) The Recoverable PIS/COFINS amounts mainly refer to credits from a legal proceeding filed by TIM Celular S.A. (ultimately merged into TIM S.A., as well as TIM S.A.itself), with a favorable final decision in Higher Courts which discussed the exclusion of the ICMS from the PIS and COFINS calculation bases.

The Company, through declaration, offset credits arising from the ICMS exclusion from the PIS and COFINS calculation basis until March 31, 2023, totaling R$ 3,517 million.

 

The current balance is mostly composed of credits arising from the non-cumulative taxation regime.

 

59 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

10.Prepaid expenses

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Prepaid expenses 570,435   278,764   359,109
Fistel (i) 210,884   -    
Advertisements not released (ii) 50,105   2,361   2,361
Rentals and insurance 71,716   64,544   64,544
Incremental costs for obtaining customer contracts (iii) 179,034   178,543   178,543
IT Services (iv) 23,743   21,500   21,500
Contractual prepaid expenses (v) -   -   77,810
Other 34,953   11,816   14,351
           
Current portion (480,950)   (198,506)   (278,851)
Non-current portion 89,485   80,258   80,258

 

 

(i) During the first half of 2023, the amounts of R$ 94 million and R$ 328 million were paid, related to TFF da Cozani and Condecine/CFR of TIM S.A. and Cozani, respectively. These amounts are monthly recognized in income.

 

(ii) Represent prepaid payments of advertising expenses for products and services of the TIM brand that are recognized in the result according to the period of serving the advertisement.

 

(iii) It is substantially represented by incremental costs related to sales commissions paid to partners for obtaining customer contracts arising from the adoption of IFRS 15/ CPC 47, which are deferred to the result in accordance with the term of the contract and/or economic benefit, usually from 1 to 2 years.

 

(iv) They represent prepayments of IT services expenses for network and migration of information to the “cloud”.

 

(v) It refers to the payment in April 2022 (acquisition date of Cozani) of TSA (Transition Service Agreement), in the amount of R$ 250,722 as remuneration, for up to 12 months of service provision in Cozani’s transition phase.

11.Judicial deposits

 

 

They are recorded at historical cost and updated according to current legislation.

 

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Judicial deposits 1,421,681   1,377,560   1,377,560
           
Civil 1,017,394   974,482   974,482
Labor 91,409   117,583   117,583
Tax 210,314   184,435   184,435
Regulatory 114   113   113
Online attachment (i) 102,450   100,947   100,947

 

(i) Refer to legal blockages directly in the company's current accounts and financial investments linked to certain legal proceedings. This amount is periodically analyzed and when identified, reclassification is made to one of the other specific accounts of the legal deposit item.

 

 

60 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

Civil

 

These are court deposits to guarantee the execution of civil proceedings where the Company is challenging the amounts involved. Most of these proceedings refer to lawsuits filed by customers, involving issues of consumer rights, among others.

 

There are some processes with differentiated matters, for instance, in which the value set by ANATEL for vacating certain transmission sub-bands is discussed, enabling the implementation of 4G technology. In this case, the amount deposited updated in court under discussion is R$ 80,721 (R$ 77,854 on December 31, 2022).

 

In a Material Fact released on October 4, 2022, a preliminary decision was handed down by the 7th Business Court of the Judicial District of Rio de Janeiro determining the deposit in court by the Buyers (TIM, Telefônica Brasil S.A. and Claro S.A.) of approximately R$ 1.53 billion – of which approximately R$ 670 million by TIM – in an account linked to the court-ordered reorganization process of Oi Móvel S.A., where it will be safeguarded until a later decision by the arbitration court. Said deposit will remain in an account linked to the Court pending the installation of the Court of Arbitration.

 

On October 19, 2022, TIM deposited the amount of R$ 670 million (R$ 733 million, restated on June 30, 2023) in guarantee for the Judgment of the 7th Corporate Court of the Judicial District of Rio de Janeiro. Said deposit will remain in an account linked to the Court pending the installation of the Court of Arbitration.

 

Labor

 

These are amounts deposited in court as guarantees for the execution and the filing of appropriate appeals, where the relevant matters or amounts involved are still being discussed. The total amount has been allocated between the various claims filed by registered employees and third-party service providers.

 

Tax

 

The Company has legal deposits in the total, restated and estimated amount of R$ 210,314 on June 30, 2023, relating to tax matters, made to support several ongoing legal discussions. Such deposits mainly relate to the following discussions:

 

 

(a)Use of credit in the acquisition of electricity directly employed in the production process of companies, matter with positive bias in the judiciary. The current value of the deposits related to this discussion is R$ 37,563 (R$ 36,417 as of December 31, 2022).

 

(b)CPMF levy on loan conversion operations into the Company’s equity; recognition of the right not to collect the contribution allegedly levied on the simple change of ownership of current accounts due to merger. The current value of the deposits related to this discussion is R$ 5,486 (R$ 5,295 on December 31, 2022).

 

(c)Constitutionality of the collection of the functioning supervision fee (TFF -Taxa de Fiscalização do Funcionamento) by municipal authorities of different localities. The current value of the deposits related to this discussion is R$ 23,200 (R$ 22,178 on December 31, 2022).

 

 

61 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

(d)Non-homologation of compensation of federal debts withholding income tax credits (IRRF) for the alleged insufficiency of credits, as well as the deposit made for the purposes of release of negative Certificate of debts. The current value of the deposits related to this discussion is R$ 11,875 (R$ 11,557 on December 31, 2022).

 

(e)Incidence of ISS on import services and third parties; alleged lack of collection in relation to ground cleaning and maintenance service of BRS (Base Radio Station), the ISS itself, the ISS incident on co-billing services and software licensing (blackberry). Guarantee of the right to take advantage of the benefit of spontaneous denunciation and search for the removal of confiscatory fines in the case of late payment. The current value of the deposits related to this discussion is R$ 11,369 (R$ 8,651 on December 31, 2022).

 

(f)Accessory services provided for in the agreement 69/98 ICMS incident on the provision of communication services of the amounts charged for ACCESS, Membership, Activation, qualification, availability, subscription and use of the services, among others. The current value of the deposits related to this discussion is R$ 3,701 (R$ 3,623 on December 31, 2022).

 

(g)Requirement by ANATEL of the public price for the administration of numbering resources. The current value of the deposits related to this discussion is R$ 3,866 (R$ 3,766 on December 31, 2022).

 

(h)Deposit made by TIM S.A. – Unconstitutionality and illegality of the collection of FUST (Fund for Universalisation of Telecommunications Services). The right not to collect FUST, failing to include in its calculation base the revenues transferred by way of interconnection and EILD (Industrial Exploitation of Dedicated Line), as well as the right not to suffer the retroactive collection of the differences determined in function of not observing sum 7/2005 of ANATEL. The current value of the deposits related to this discussion is R$ 65,992 (R$ 63,967 on December 31, 2022).

 

(i)ICMS - Miscellaneous. Deposits made in several processes that discuss ICMS charges, mainly related to discussions on loan, DIFAL, exempt and non-taxed services, ICAP and Covenant 39. The current value of the deposits related to this discussion is R$ 22,071 (R$ 7,691 on December 31, 2022).

 

(j)Charges related to cases of Jornal do Brasil that were directed to the company. The current value of the deposits related to this discussion is R$ 15,018 (R$ 11,524 on December 31, 2022).

 

12.Other financial assets

 

The initial recognition of an equity instrument in the balance sheet is carried at its fair value as of the acquisition or issue date. Such financial assets and liabilities are subsequently measured at fair value through profit or loss. Changes arising from the fair value measurement, where applicable, shall be recognised in the result when incurred, under the line of financial income.

 

On March 26, 2020, TIM S.A. and BANCO C6 S.A. concluded the negotiations over a strategic partnership aimed at developing combined offerings with special benefits to the customer bases of Partners.

 

In July 2020, the first offering was launched in partnership with Banco C6, with special conditions to TIM customers who are also C6 customers. The innovating partnership provides great potential to generate value for both companies through user base growth and greater client loyalty.

 

62 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

On February 1, 2021, TIM announced that, within the scope of this partnership, the right to exercise Subscription Warrant equivalent to the indirect interest of approximately 1.44% of Banco C6’s share capital Banco C6 as a result of meeting, in December 2020, the 1st level of the agreed targets. Subsequently, the Company exercised its option to acquire and convert C6 shares, which represents approximately 1.44% of the Bank. It is worth highlighting that once the option is exercised, TIM started holding a minority position and does not have a position of control or significant influence in the management of C6.

 

The Company exercised its option to acquire and convert C6 shares, which represents 1.44% of ownership interest at Banco C6, which totals R$ 162,958.

 

63 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

13.Other assets

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Other assets 263,045   265,661   265,042
           
Advances to employees 35,746   7,092   7,092
Advances to suppliers 24,250   31,422   31,437
Amounts receivable from TIM Brasil (Note 35) 22,664   22,790   22,790
Amounts receivable from incentivized projects 31,758   63,034   63,034
Recoverable INSS     72,549   69,794   69,794
Other   76,078   71,529   70,895
           
Current portion (228,880)   (200,264)   (199,644)
    Non-current portion 34,165   65,397   65,398
14.Investment

 

The ownership interest in associated company or subsidiary is valued using the equity accounting method.

 

Cozani

 

As mentioned in Note 1.2, on April 20, 2022, TIM S.A. (jointly with other buyers Telefônica Brasil S.A. and Claro S.A.), after complying with the precedent conditions established by the Administrative Council for Economic Defense (CADE) and ANATEL, concluded the process of acquiring the mobile assets of Oi Móvel S/A – Under court-ordered reorganization.

 

With the conclusion of the Transaction, TIM S.A. now holds 100% of the share capital of Cozani, a company that corresponds to the part of the unit of assets, rights and obligations of Oi Móvel acquired by the Company. On April 1, 2023, TIM S.A. acquired Cozani, therefore, for all effects, the latter was dissolved and consequently, for all purposes and effects, TIM S.A. does not have equity interest in Cozani as of June 30, 2023. TIM S.A. had 100% in the share capital of Cozani on December 31, 2022.

 

I-Systems

 

In December 2020, the company Fiber Co (current I-Systems) was established and was 100% controlled by TIM S.A. In November 2021, as a result of the spin-off of net assets of the broadband business and the creation of I-Systems (formerly FiberCo) with subsequent sale of 51% of its equity interest on behalf of IHS, TIM S.A. assessed the transaction as a loss of control and stopped consolidating it, recording the investment in an associated company, in the amount of R$ 1,612,957 at fair value for the remaining minority interest (non-controlling) of 49%.

 

TIM S.A. has 49% (49% on December 31, 2022) in the share capital of I-Systems. The following table represents summarized financial information about the investments of I-Systems:

 

 

 

 

 

 

64 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

                         June 2023   December 2022
 Assets 1,926,688   1,820,223
    Current and non-current assets   268,274   291,799
   Tangible and intangible assets 1,658,414   1,528,424
       
Liabilities and shareholders’ equity 1,926,688   1,820,223
   Current and non-current liabilities 589,713   398,189
Shareholders’ equity 1,336,975   1,422,034
       
Company’s proportional interest        49%          49%
Investment value (Note 14.b) 1,498,437   1,540,116

 

 

June 2023 December 2022

 

Net loss for the period (85,059) (125,687)

 

Company’s proportional interest

 

49%

                 49%

 

Company’s interest in the associated company’s income (loss)

 

(41,679)

 

(61,587)

 

 

 

 

a)Interest in subsidiaries and associated company

 

    Associated companies        Subsidiary   Total
   

June 2023

I-Systems

  

December 2022

I-Systems

   Cozani up to 03/31/2023  

December 2022

Cozani

  

 

June 2023

  

 

December 2022

                         
                         
Total number of shares   1,794,287,995   1,794,287,995   -   3,002,872   -   -
                         
Interest in total capital   49%   49%   -   100%   -   -
                         
Shareholders' equity   1,336,975   1,422,034   -   4,199,623   -   -
                         
Loss for the period/year (i)   (85,059)   (125,687)   -   (626,258)   -   -
                         
Equity in earnings  

 

 

(41,679)

  

 

 

(61,587)

  

 

 

153,387

  

 

 

(492,165)

  

 

 

111,708

  

 

 

(553,752)

Amortization of surplus   -   -   (53,781)   (134,093)   (53,781)   (134,093)
                         
Investment amount   1,498,437   1,540,116   -   4,199,623   1,498,437   5,739,739
                         

 

 

65 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

(i) The subsidiary’s results show the changes from the acquisition date. The date of acquisition and transfer of control was April 20, 2022 and the results of the subsidiary were consolidated as of April 30, 2022, as the financial information available is closest to the date of transfer of control.

 

Cozani’s shareholders’ equity as of April 30, 2022 was adjusted to comply with the Company’s accounting practices, reflecting a decrease of approximately R$ 1,641 million, mainly related to the impairment of tangible assets, recording of onerous capacity contract and deferred taxes.

 

b)Changes in investment in subsidiaries and associated companies:

 

 

  I-Systems (associated company)  

Cozani

(merged subsidiary)

                  Total
           
Balance of investment on December 31, 2022 1,540,116   4,199,623   5,739,739
Amortization of surplus up to March 31, 2023 -   (53,781)   (53,781)
Equity in earnings (41,679)   153,387   111,708
Cozani shareholders’ equity – acquired by TIM S.A. -   (1,194,523)   (4,299,229)
Surplus of radio frequency and customer list     (3,104,706)    
Balance of investment on June 30, 2023 1,498,437   -   1,498,437

 

 

15.Property, plant and equipment

 

Property, plant and equipment are stated at acquisition and/or construction cost, less accumulated depreciation and impairment losses (the latter only if applicable). Depreciation is calculated based on the straight-line method over terms that take into account the expected useful lives of the assets and their residual values. The amounts of property, plant and equipment recorded on Cozani’s acquisition were adjusted to its recoverable amounts and after the merger are recorded at TIM S.A. On June 30, 2023 and December 31, 2022, the Company has no other indication of impairment in its property, plant and equipment.

 

The estimated costs of dismantling towers and equipment on rented properties are capitalized and depreciated over the estimated useful lives of these assets. The Company recognizes the present value of these costs in property, plant and equipment with a counter-entry to the liability “provision for future asset retirement”. Interest incurred on updating the provision is classified within financial expenses.

 

Gains and losses on disposal are determined by comparing the amounts of these disposals with the book value at the time of the transaction and are recognized in “other operating expenses (revenue), net” in the statement of income.

 

66 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

·Changes in property, plant and equipment
  Parent Company
  Balance in December 2022 Additions Write-offs Transfers Addition by merger Balance in June 2023
 
Total cost of property, plant and equipment, gross 54,530,017 2,683,375 (53,956) - 11,371,149 68,530,585
Commutation/transmission equipment 28,749,731 - (42,513) 1,765,336 6,527,485 37,000,039
Fiber optic cables 783,396 - - 762 - 784,158
Leased handsets 2,956,156 - (2,180) 108,415 920,690 3,983,081
Infrastructure 6,921,727 - (5,371) 133,952 572,350 7,622,658
Informatics assets 1,780,652 - (2,062) 19,707 - 1,798,297
General use assets 957,396 - (263) 15,596 9,202 981,931
Right-of-use in leases 11,493,062 941,907 (865) - 3,341,422 15,775,526
Land 39,802 - - - - 39,802
Construction in progress 848,095 1,741,468 (702) (2,043,768) - 545,093
             
Total Accumulated Depreciation (34,754,757) (2,453,034) 51,142 - (8,289,050) (45,445,699)
Commutation/transmission equipment (20,101,222) (1,134,004) 42,658 - (6,088,197) (27,280,765)
Fiber optic cables (583,854) (30,703) - - - (614,557)
Leased handsets (2,677,840) (82,381) 1,045 - (920,672) (3,679,848)
Infrastructure (4,404,860) (181,484) 5,240 - (587,153) (5,168,257)
Informatics assets (1,675,605) (23,482) 2,061 - - (1,697,026)
General use assets (698,448) (24,976) 138 - (7,706) (730,992)
Right-of-use in leases (4,612,928) (976,004) - - (685,322) (6,274,254)
Total property, plant and equipment, net 19,775,260 230,341 (2,814) - 3,082,099 23,084,886
Commutation/transmission equipment 8,648,509 (1,134,004) 145 1,765,336 439,288 9,719,274
Fiber optic cables 199,542 (30,703) - 762 - 169,601
Leased handsets 278,316 (82,381) (1,135) 108,415 18 303,233
Infrastructure 2,516,867 (181,484) (131) 133,952 (14,803) 2,454,401
Informatics assets 105,047 (23,482) (1) 19,707 - 101,271
General use assets 258,948 (24,976) (125) 15,596 1,496 250,939
Right-of-use in leases 6,880,134 (34,097) (865) - 2,656,100 9,501,272
Land 39,802 - - - - 39,802
Construction in progress 848,095 1,741,468 (702) (2,043,768) - 545,093

 

 

 

67 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

  Parent Company
  Balance in December 2021 Additions Write-offs Transfers Balance in June 2022
 
Total cost of property, plant and equipment, gross 49,159,678 3,165,777 (63,340) - 52,262,115
Commutation/transmission equipment 25,854,454 (919) (30,647) 1,450,223 27,273,111
Fiber optic cables 778,512 - - 3,689 782,201
Leased handsets 2,806,454 535 (15,459) 83,314 2,874,844
Infrastructure 6,443,285 - (4,067) 352,021 6,791,239
Informatics assets 1,756,340 - (237) 9,061 1,765,164
General use assets 916,845 - (639) 14,297 930,503
Right-of-use in leases 9,779,327 1,133,598 (11,753) - 10,901,172
Land 40,794 - (640) - 40,154
Construction in progress 783,667 2,032,563 102 (1,912,605) 903,727
           
Total Accumulated Depreciation (30,851,278) (2,028,392) 46,413 - (32,833,257)
Commutation/transmission equipment (18,187,994) (1,008,149) 31,028 - (19,165,115)
Fiber optic cables (522,205) (30,843) - - (553,048)
Leased handsets (2,534,691) (76,028) 10,992 - (2,599,727)
Infrastructure (4,043,155) (190,799) 3,797 - (4,230,157)
Informatics assets (1,629,730) (26,572) 230 - (1,656,072)
General use assets (649,229) (24,790) 366 - (673,653)
Right-of-use in leases (3,284,274) (671,211) - - (3,955,485)
Total property, plant and equipment, net 18,308,400 1,137,385 (16,927) - 19,428,858
Commutation/transmission equipment 7,666,460 (1,009,068) 381 1,450,223 8,107,996
Fiber optic cables 256,307 (30,843) - 3,689 229,153
Leased handsets 271,763 (75,493) (4,467) 83,314 275,117
Infrastructure 2,400,130 (190,799) (270) 352,021 2,561,082
Informatics assets 126,610 (26,572) (7) 9,061 109,092
General use assets 267,616 (24,790) (273) 14,297 256,850
Right-of-use in leases 6,495,053 462,387 (11,753) - 6,945,687
Land 40,794 - (640) - 40,154
Construction in progress 783,667 2,032,563 102 (1,912,605) 903,727

 

 

 

 

 

 

 

68 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

The construction in progress represent the cost of projects in progress related to the construction of networks and/or other tangible assets in the period of their construction and installation, until the moment they come into operation, when they will be transferred to the corresponding accounts of these assets.

 

  Consolidated
  Balance in December 2021 Additions / depreciation Write-offs Transfers Acquisitions of subsidiary (Note 1.2) (*) Balance in June 2022
Total cost of property, plant and equipment, gross 49,159,678 3,167,289 (63,340) - 11,455,227 63,718,854
Commutation/transmission equipment 25,854,454  (919)  (30,647) 1,450,223 7,245,512 34,518,623
Fiber optic cables 778,512 - - 3,689 756 782,957
Leased handsets 2,806,454  535  (15,459) 83,314 - 2,874,844
Infrastructure 6,443,285 -  (4,067) 352,021 701,025 7,492,264
Informatics assets 1,756,340 -  (237) 9,061 336,123 2,101,287
General use assets 916,845 -  (639) 14,297 212,022 1,142,525
Right-of-use in leases 9,779,327 1,133,598 (11,753) - 2,929,449 13,830,621
Land 40,794 -  (640) - - 40,154
Construction in progress 783,667  2,034,075  102 (1,912,605) 30,340 935,579
             
Total Accumulated Depreciation (30,851,278) (2,268,987) 46,413 - (6,997,956) (40,071,808)
Commutation/transmission equipment (18,187,994)  (1,073,061)  31,028 - (5,915,990) (25,146,017)
Fiber optic cables (522,205)  (30,860) - - (25) (553,090)
Leased handsets (2,534,691)  (76,028)  10,992 - - (2,599,727)
Infrastructure (4,043,155)  (192,788)  3,797 - (562,370) (4,794,516)
Informatics assets (1,629,730)  (25,430)  230 - (337,265) (1,992,195)
General use assets (649,229)  (24,075)  366 - (182,306) (855,244)
Right-of-use in leases (3,284,274)  (846,745)   - - (4,131,019)
Total property, plant and equipment, net 18,308,400 898,302 (16,927) - 4,457,271 23,647,046
Commutation/transmission equipment 7,666,460  (1,073,980)  381 1,450,223 1,329,522 9,372,606
Fiber optic cables 256,307  (30,860) - 3,689 731 229,867
Leased handsets 271,763  (75,493)  (4,467) 83,314 - 275,117
Infrastructure 2,400,130  (192,788)  (270) 352,021 138,655 2,697,748
Informatics assets 126,610  (25,430)  (7) 9,061 (1,142) 109,092
General use assets 267,616  (24,075)  (273) 14,297 29,716 287,281
Right-of-use in leases 6,495,053 286,853 (11,753) - 2,929,449 9,699,602
Land 40,794 -  (640) - - 40,154
Construction in progress 783,667  2,034,075  102 (1,912,605) 30,340 935,579
             

 

(*) In June 2022, the allocation process related to the business combination (PPA – Purchase Price Allocation) was in progress, the definite amounts, described in note 1.2, being obtained in December 2022. In June 2022, the Company ecorded net tangible assets of R$ 4,457,271, however, at the end of the PPA valuation in December 2022, the balance of net tangible assets as of the acquisition date was set at R$ 3,518,477.

 

69 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

The lease rights of use are represented by leased agreements of identifiable assets within the scope of IFRS16 / CPC 06 (R2) standard. These rights refer to leases of network infrastructure, stores and kiosks, real estate, land (Network) and fiber, as below:

 

 

 

 Parent Company
Right-of-use in lease Network infrastructure Shops & kiosks and real estate Land (Network) Fiber Total
Balances at December 31, 2022  3,637,960  639,210  1,596,882  1,006,082  6,880,134
  Additions by merger 1,478,836 - 1,177,264 - 2,656,100
   Additions 457,863 118,804 305,228 60,012 941,907
  Remeasurement 51,678 (34,218) (18,325) - (865)
   Depreciation (454,927) (67,919) (208,353) (244,805) (976,004)
Balances at June 30, 2023 5,171,410 655,877 2,852,696 821,289 9,501,272
Annual depreciation rates 12.29% 11.71% 12.65% 7.83%  

Parent Company

Right-of-use in lease Network infrastructure Shops & kiosks and real estate Land (Network) Fiber Total
Balances at December 31, 2021 3,048,509 541,312 1,504,233 1,400,999 6,495,053
        Additions 742,282 132,322 206,818 52,176 1,133,598
 Remeasurement (2,192) (4,669) (4,892) - (11,753)
 Depreciation (257,827) (63,615) (111,445) (238,324) (671,211)
Balances at June 30, 2022 3,530,772 605,350 1,594,714 1,214,851 6,945,687
Annual depreciation rates 11.35% 11.00% 11.38% 7.12%  

 

Consolidated

Right-of-use in lease Network infrastructure Shops & kiosks and real estate Land (Network) Fiber Total
Balances at December 31, 2021 3,048,509 541,312 1,504,233 1,400,999 6,495,053
Sa    Balance of acquired company 214.3142   786,307   2,929,449
        Additions 742,282 132,322 206,818 52,176 1,133,598
 Remeasurement (2,192) (4,669) (4,892) - (11,753)
 Depreciation (397,688) (63,615) (147,117) (238,325) (846,745)
Balances at June 30, 2022 5,534,053 605,350 2,345,349 1,214,850 9,699,602
           
Annual depreciation rates 11.35% 11.00% 11.38% 7.12%  

 

 

70 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

·Depreciation rates
    Annual fee %
Commutation / transmission equipment   08–14.29
Fiber optic cables   4–10
Leased handsets   14.28–50
Infrastructure   4–20
Informatics assets    10–20
General use assets   10–20

 

In 2022, pursuant to IAS 16 / CPC 27, approved by a CVM Deliberation 73, the Company assessed the useful life estimates for their property, plant and equipment, concluding that there were no significant changes or alterations to the circumstances on which the estimates were based that would justify changes to the useful lives currently in use.

 

16.Intangible assets

 

Intangible assets are measured at historical cost less accumulated amortization and impairment losses (if applicable) and reflect: (i) the purchase of authorizations and rights to use radio frequency bands, and (ii) software in use and/or development. Intangible assets also include: (i) infrastructure right-of-use of other companies, and (ii) goodwill on expectation of future profits in purchases of companies.

 

Amortization charges are calculated using the straight-line method over the estimated useful life of the assets contracted and over the terms of the authorizations. The useful life estimates of intangible assets are reviewed regularly.

 

Any financial charges on funds raised (that is, without a specific destination) and used to obtain a qualifying asset, meaning an asset that requires a significant time to be ready for use, are capitalized as a portion of the cost of the asset when it is likely to bring future economic benefits to the entity and such costs can be accurately measured. These costs are amortized throughout the estimated useful lives of the assets. Within this concept, we had the capitalization of charges for the 700MHz 4G license between 2014 and 2019 and we had the capitalization of charges on the acquisition of the 5G license for the radio frequency not readily available and other obligations related to such radio frequency between 2021 and 2023. This capitalization occurred when the asset was considered available for use by Management. As of the second quarter of 2023, the capitalization of interest and charges on this asset ended. These costs are amortized over the estimated useful lives.

 

The values of permits for the operation of SMP and rights to use radio frequencies, as well as software, goodwill and others are demonstrated as follows:

 

 

The cost of intangible assets acquired in a business combination corresponds to their fair value at acquisition date. After the initial recognition, the intangible assets are stated at cost, less accumulated amortization and impairment losses.

 

Intangible assets with undefined useful lives are not amortized but tested for impairment on an annual basis, individually or at cash generating unit level.

 

71 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

(a)Changes in intangible assets

 

  Parent Company
  Balance in December 2022 Additions/ Amortization Addition by merger Write-offs Transfers Capitalized interest Balance in June 2023
 
Total cost of intangible assets, gross 38,732,905 492,507 6,446,789 (13) - 95,678 45,767,866
Right to use software 20,876,377 - 1,366,860 (13) 485,597 - 22,728,821
Authorizations 11,250,610 8,843 4,598,839 - 2,890,938 - 18,749,230
Goodwill (i) 3,112,169 - - - - - 3,112,169
Infrastructure right-of-use - LT Amazonas 201,778 - - - 5,811 - 207,589
List of clients - - 253,629 - - - 253,629
Other assets 339,417 - 227,461 - 1,415 - 568,293
Intangible assets under development 2,952,554 483,664 - - (3,383,761) 95,678 148,135
               
Total Accumulated Amortization (25,730,124) (885,223) (3,102,345) 13 - - (29,717,679)
Right to use software  (18,454,058)  (492,653)  (1,355,500)  13 - -  (20,302,198)
Authorizations  (6,984,930)  (362,458)  (1,586,245) - - -  (8,933,633)
Infrastructure right-of-use - LT Amazonas  (86,488)  (5,287) - - - -  (91,775)
List of clients    (8,284)  (30,312) - - -  (38,596)
Other assets  (204,648)  (16,541)  (130,288) - - -  (351,477)
               
Total intangible assets, net  13,002,781  (392,716)  3,344,444 - -  95,678  16,050,187
Right to use software (c) 2,422,319  (492,653)  11,360 -  485,597 -  2,426,623
Authorizations (f) 4,265,680  (353,615)  3,012,594 -  2,890,938 -  9,815,597
Goodwill (d) 3,112,169 - - - - -  3,112,169
Infrastructure right-of-use - LT Amazonas (e) 115,290  (5,287) - -  5,811 -  115,814
List of clients -  (8,284)  223,317 -      215,033
Other assets 134,769  (16,541)  97,173 -  1,415 -  216,816
Intangible assets under development 2,952,554  483,664 - -  (3,383,761)  95,678  148,135

 

 

72 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

 

 

 Parent Company
  Balance in December 2021 Additions/ Amortization Write-offs Transfers Balance in June 2022
 
Total cost of intangible assets, gross 34,630,541 2,678,865 (3,200) - 37,306,206
Right to use software 19,911,004 - - 508,016 20,419,020
Authorizations 11,151,497 27,136 (3,200) 7,088 11,182,521
Goodwill 475,743 1,950,720 - - 2,426,463
Infrastructure right-of-use - LT Amazonas 186,221 - - 15,557 201,778
Other assets 333,116 - - 3,714 336,830
Intangible assets under development 2,572,960 701,009 - (534,375) 2,739,594
           
Total Accumulated Amortization (24,045,462) (848,776) 3,200 - (24,891,038)
Right to use software  (17,432,018)  (516,021) - -  (17,948,039)
Authorizations  (6,357,666)  (315,519)  3,200 -  (6,669,985)
Infrastructure right-of-use - LT Amazonas  (76,697)  (4,616) - -  (81,313)
Other assets  (179,081)  (12,620) -    (191,701)
           
Total intangible assets, net  10,585,079  1,830,089 - -  12,415,168
Right to use software (c) 2,478,986  (516,021) -  508,016  2,470,981
Authorizations (f) 4,793,831  (288,383) -  7,088  4,512,536
Goodwill (d) 475,743  1,950,720 - -  2,426,463
Infrastructure right-of-use - LT Amazonas (e) 109,524  (4,616) -  15,557  120,465
Other assets 154,035  (12,620) -  3,714  145,129
Intangible assets under development 2,572,960  701,009 -  (534,375)  2,739,594

 

 

The intangible assets in progress represent the cost of projects in progress related to the intangible assets in the period of their construction and installation, until the moment they come into operation, when they will be transferred to the corresponding accounts of these assets. From December 2021 to April 2023 includes the amounts for acquisition values of the 5G License, which were transferred to goods in service (“Authorizations”) in April 2023, as per note 16.f.

 

(i) In December 2022, with the acquisition of Cozani (see Notes 1.2 and 16.d), definitive goodwill was recorded in the business combination of R$ 2,636,426. In June 2022, the Company recorded a provisional goodwill of R$ 1,950,720.

 

 

 

 

 

 

 

 

73 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

  Consolidated
  Balance in December 2021 Additions/ Amortization Write-offs Transfers Acquisitions of subsidiary (Note 1.2*) Balance in June 2022
 
Total cost of intangible assets, gross 34,630,541 2,678,865 (3,200) - 7,154,551 44,460,757
Right to use software 19,911,004 - - 508,016 1,366,860 21,785,880
Authorizations 11,151,497 27,136 (3,200) 7,088 4,479,613 15,662,134
Goodwill 475,743 1,950,720 - - - 2,426,463
Infrastructure right-of-use - LT Amazonas 186,221 - - 15,557 - 201,778
Other assets 333,116 - - 3,714 1,308,078 1,644,908
Intangible assets under development 2,572,960 701,009 - (534,375) - 2,739,594
             
Total Accumulated Amortization (24,045,462) (892,508) 3,200 - (3,780,967) (28,715,737)
Right to use software  (17,432,018)  (517,706) - -  (1,347,360)  (19,297,084)
Authorizations  (6,357,666)  (351,671)  3,200 -  (1,381,802)  (8,087,939)
Infrastructure right-of-use - LT Amazonas  (76,697)  (4,616) - - -  (81,313)
Other assets  (179,081)  (18,515) -    (1,051,805)  (1,249,401)
             
Total intangible assets, net  10,585,079  1,786,357 - -  3,373,584  15,745,020
Right to use software (c) 2,478,986  (517,706) -  508,016  19,500  2,488,796
Authorizations (f) 4,793,831  (324,535) -  7,088  3,097,811  7,574,195
Goodwill (d) 475,743  1,950,720 - - -  2,426,463
Infrastructure right-of-use - LT Amazonas (e) 109,524  (4,616) -  15,557 -  120,465
Other assets 154,035  (18,515) -  3,714 256,273 395,507
Intangible assets under development 2,572,960  701,009 -  (534,375)   2,739,594

 

 

 

            

 

(*) In June 2022, the allocation process related to the business combination (PPA – Purchase Price Allocation) was in progress, the definite amounts, described in note 1.2, being obtained in December 2022. In June 2022, the Company recorded net intangible assets of R$ 3,373,584, however, at the end of the PPA valuation in December 2022, the balance of net intangible assets as of the acquisition date was set at R$ 3,599,811.

 

(b) Amortization rates

 

  Annual fee %
   
Software licenses 20
Authorizations 5–50
Right to use infrastructure 5
Other assets 7–10

 

 

74 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

(c) Software licenses

 

The costs associated with maintaining software are recognized as expense, as incurred. Development costs that are directly attributable to software product design and testing, and are identifiable and exclusive, controlled by the Group, are recognized as intangible assets when the capitalization criteria are met.

 

Directly attributable costs that are capitalized as part of the software product are related to employee costs directly allocated in its development.

 

(d) Goodwill registered

 

The Company has the following goodwills, based on the expected future profitability on June 30, 2023 and December 31, 2022:

Goodwill on the acquisition of Cozani

 

As described in Note 1.2.1, in April 2022 the Company acquired 100% of Cozani, with a total consideration paid of R$ 7,211,585 and identifiable assets, net of liabilities assumed, at a fair value of R$ 4,575,159. Therefore, having a remaining amount of goodwill allocated from R$ 2,636,426, which is recorded on June 30, 2023 and December 31, 2022.

The Company describes the accounting practice adopted in business combinations in the Note 2e that initially, goodwill is initially measured as being the excess of consideration transferred in relation to net assets acquired (acquired identifiable assets and assumed liabilities).

After initial recognition, the goodwill is carried at cost less impairment losses (if any). For purposes of impairment testing, goodwill acquired in a business combination is, as of the acquisition date, allocated to the respective cash-generating units that are expected to benefit from the combination. In the case of the TIM group, the goodwill was allocated to the mobile cash generating unit, which is the only one identified so far.

Goodwill from TIM Fiber SP and TIM Fiber RJ acquisitions – TIM Celular S.A. (merged by Intelig, current TIM S.A.) acquired, at the end of 2011, the companies Eletropaulo Telecomunicações Ltda. (which subsequently had its trade name changed to TIM Fiber SP Ltda. – “TIM Fiber SP”) and AES Communications Rio de Janeiro S.A. (which subsequently had its trade name changed to TIM Fiber RJ S.A. – “TIM Fiber RJ”). These companies were SCM providers in the main municipalities of the Greater São Paulo and Greater Rio de Janeiro areas, respectively. TIM Fiber SP Ltda. and TIM Fiber RJ. S.A. were merged into TIM Celular S.A. on August 29, 2012. TIM Celular S.A. recorded the goodwill allocation related to the purchase of the companies TIM Fiber SP and TIM Fiber RJ, at the end of the purchase price allocation process, in the amount of R$ 1,159,649.

In November 2021, the Company concluded the drop-down of liquid assets related to the residential broadband business linked to the secondary network infrastructure to the wholly-owned subsidiary FiberCo and sold 51% of the equity interest in FiberCo, currently named I- Systems, on behalf of IHS. Currently, due to the closing of the transaction, TIM S.A. wrote-off about 90% of the total goodwill recorded in the acquisition of TIM Fiber SP Ltda. and TIM Fiber RJ S.A. in the amount of R$ 1,051,477. As a result, IHS currently holds 51% of the share capital of I-Systems, with TIM S.A. having a minority (non-controlling) interest of 49% in I-Systems. Consequently, with the closing of this deal in November 2021, the goodwill initially recorded on the acquisition of the companies Fiber RJ and Fiber SP was reduced to R$ 108,171 and this balance was recorded on June 30, 2023 and December 31, 2022.

 

75 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

On August 31, 2020, with the merger of TIM Participações S.A. by TIM S.A., the Company recorded the goodwill arising from the merger of the net assets of TIM Participações, which were originated in acquisition transactions as described below:

Goodwill acquisition of "Intelig" by TIM Participações – the goodwill arising from the acquisition of TIM S.A. (formerly ”Intelig") in December 2009 in the amount of R$ 210,015 is represented/based on the expectation of future profitability of the Company. Its recoverability is tested annually, through the impairment testing.

Goodwill from the acquisition of minority interests in TIM Sul and TIM Nordeste – TIM Participações S.A. (merged by TIM S.A. in August 2020) acquired in 2005, all the shares of the minority shareholders of TIM Sul and TIM Nordeste, in exchange for shares issued by TIM Participações, converting these companies into full subsidiaries. The goodwill resulting from this transaction amounted to R$ 157,556.

 

Impairment test

 

As required by the accounting standard, the Company tests goodwill on business combinations.

The methodology and assumptions used by Management for the aforementioned impairment test is summarized below:

 

The management of the Company understands that the smallest unit generating cash for impairment testing of goodwill in the acquisition of the companies previously described covers the business at the consolidated level, therefore it covers the consolidated group. This methodology is aligned with the company's strategic direction. It is important highlighting that the group’s results are essentially represented by TIM S.A., but with the acquisition of Cozani in 2022, it started generating results in the TIM S.A. as of April 30, 2022. The Company understands that the consolidated results of TIM S.A. represent a single cash-generating unit for purposes of impairment testing of assets with indefinite useful lives, in accordance with IAS 36/CPC 01.

 

On December 31, 2022, the impairment test was performed by comparing the book value with the fair value minus the disposal costs of the asset, as foreseen in IAS 36 / CPC 01.

 

For the calculation of fair value, the level of hierarchy within which the measurement of the fair value of the asset (cash generating unit) is classified was considered. For the company, as there is only one CGU this was classified in its entirety as Level 1, for the disposal costs we consider that it is irrelevant considering the variation between the fair value level 1 and the book value of the cash generating unit.

 

The fair value of Tier 1 instruments comprises instruments traded on active markets and based on market prices quoted at the balance sheet date. A market is considered active when the quoted prices are readily and regularly available from an Exchange, distributor, broker, industry group, pricing service or regulatory agency, and these prices represent actual market transactions which occur regularly on a purely commercial basis.

 

Company’s shares are traded on B3 – Brasil, Bolsa, Balcão (“B3”) with code (TIMS3) and have a regular trading volume that allows the measurement (Level 1) as the product between the quoted price for the individual asset or liability and the amount held by the entity.

 

In 2022, the measurement was made based on the value of the share at the balance sheet closing date and sensitivity tests were also performed and in none of the scenarios was identified any indication of impairment, being the fair value determined higher than the book value. Therefore, being the fair value higher than the book value, it is not necessary to calculate the value in use. Therefore, the calculations carried out at the consolidated level essentially contemplate the results and accounting balances of TIM S.A., so the management of the Company concludes that the use of the fair value less of cost of sales methodology is adequate to conclude that there is no provision for impairment since the fair value less the cost of sales is higher than the total book value of the cash generating unit.

 

76 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

On June 30, 2023, the Company carried out the analysis of all tangible, intangible assets and investments and did not identify any impairment indicators.

 

 

(e) Right to use infrastructure - Lt Amazonas

 

The company has signed infrastructure rights agreements with companies that operate electricity transmission lines in the Northern Region of Brazil. These contracts fall within the scope of IFRIC 4 / ICPC 3 as financial commercial leases.

 

Additionally, the Company has signed network infrastructure sharing agreements with Telefónica Brasil S.A., also in the North Region. In these, the two operators optimize resources and reduce their respective operating costs.

(f) Authorizations

4G License

In this item are recorded the values related to the acquisition of Lot 2 in the auction of the 700 MHz band in the amount of R$ 1,739 million, in addition to the costs related to the cleaning of the frequency of the 700 MHZ band acquired, which totalled R$1,199 million, in nominal values. As it is a long-term obligation, the amount payable of R$ 1,199 million was reduced by R$ 47 million by applying the concept of adjustment to present value (“AVP”). The aforementioned license fell under the concept of qualifying asset. Consequently, the financial charges on resources raised without a specific destination, used for the purpose of obtaining a qualifying asset, were capitalized between the years 2014 and 2019.

5G License

In 2021, there was a record regarding the acquisition of the 5th Generation (“5G”) mobile telephony radio frequencies.

In November 2021, TIM participated in the 5G Auction and was the winner of several lots in the 2.3GHz, 3.5Ghz and 26Ghz radio frequency bands. These licenses will be paid over a period of 10 to 20 years, subject to restatement at the Selic rate. In December 2021, the Company signed the Terms of Authorization for these radio frequencies, generating the accounting of an intangible asset related to the licenses in the amount of R$ 884 million and the obligations related to said licenses (among them, disbursements with costs of the public notice and disbursement obligations with the management entities described below) in the amount of R$ 2,680 million.

Aiming to fulfill the additional obligations, the Company foresees, according to the notice, that there will the constitution of managing entities, which are only intended to fulfill the commitments provided for in the Auction. The companies that win the Auction must disburse only the amounts provided for in the public notice so that such entities comply with the defined obligations. There are additional obligations provided for related to 3.5GHz radio frequency (the band cleaning obligation, interference solution, among others), which must be complied with by the Band Management Entity (“EAF”), and related to 26GHz radio frequency (connectivity project for public schools), which must be complied with by the Entity Managing the Connectivity of Schools (“EACE”).

On the signature date of the terms, in December 2021, the 2.3GHz and 26GHz radio frequencies were readily available for use by the Company (operating assets), generating the registration in 2021 in “Authorizations” of the amounts related to the licenses (R$ 614 million) and the obligations related to the 26GHz license, which will be fulfilled through EACE (R$ 550 million). The disbursements with EACE (R$ 633 million), provided for in the Public Notice, will occur in 5 semi-annual installments between 2022 and 2024, and are monetarily restated by the IGP-DI. The Company evaluated the application of the concept of adjustment to present value (“AVP”) upon initial recognition (R$ 83 million).

 

77 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

The 3.5GHz radio frequency was not readily available, requiring spectrum cleaning activities to be available for use, and, thus, it was registered in assets in progress (R$ 270 million). Therefore, the obligations related to this activity, to be carried out by EAF (R$ 2,104 million) were also recorded under assets in progress. The disbursements with the EAF, as provided for in the Public Notice, were restated by the IGP-DI until the disbursement dates. Such disbursements took place in 2 installments in 2022 (R$ 1,090 million in February and R$ 1,133 million in May) to EAF.

 

Furthermore, as described above, the Company capitalizes loan costs for qualifying assets that require a substantial period of time to be in a condition for use as intended by Management. This concept includes the 3.5GHz radio frequency. On June 30, 2023, the Company recorded R$ 82 million in intangible assets referring to interest calculated based on the Selic rate (R$ 259 million in 2022) incurred on the 3.5GHz radio frequency and did not capitalize the inflation adjustments of amounts due to EAF in 2023 since there is no further balance to disburse with this entity (R$ 99 million in 2022). These balances were recorded as goods in progress until the asset was available for the use intended by Management. In the second quarter of 2023, the asset was considered available for use by the Company, ceasing such capitalization. Thus, the transfer of goods in progress to the line of authorizations in service was carried out.

Thus, the total effect on the Company’s intangible assets on June 30, 2023 referring to 5G radio frequencies and related obligations was R$ 3,930 million (R$ 3,866 million in 2022) and there are no more balances of assets in progress relating to 5G licenses on June 30, 2023 (R$ 2,753 million in 2022) and R$ 3,930 million in Authorizations (R$ 1,113 million in 2022).

17.Leases

 

 

When entering into a contract, the Company assesses whether the contracts signed are (or contain) a lease. An agreement is (or contains) a lease if it transmits the right to control the use of an identified asset for a period of time in exchange for consideration.

 

Leases whose the Company is a lessee are capitalized at the lease's commencement at the lower of the fair value of the leased asset (right-of-use) and the present value of payments provided for in contract, and lease liability as a counterparty. Interest related to the leases is taken to income as financial costs over the term of the contract.

 

Leases in which the Company, as a lessor, transfers substantially all the risks and rewards of ownership to the other party (lessee) are classified as finance leases. These lease values are transferred from the intangible assets of the Company and are recognized as a lease receivable at the lower of the fair value of the leased item and/or the present value of the receipts provided for in the agreement. Interest related to the lease is taken to income as financial revenue over the contractual term.

 

Asset leases are financial assets or liabilities classified and/or measured at amortized cost.

 

 

 

 

 

 

 

 

78 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

Assets

 

 

    Parent Company   Consolidated
    June 2023   December 2022   December 2022
LT Amazonas   182,512   179,305   179,305
Sublease “resale stores” – IFRS 16   54,292   59,341   59,341
    236,804   238,646   238,646
             
Current portion   (29,036)   (30,643)   (30,643)
Non-current portion   207,768   208,003   208,003

 

 

The table below presents the schedule of cash receipts for the agreement currently in force, representing the estimated receipts (nominal values) in the signed agreements. These balances differ from those shown in the books since, in the case of the latter, the amounts are shown at present value.

 

The amounts below represent the parent company and consolidated balances.

 

 

 

 

 Up to June 2024 July 2024 to June 2029 July 2029 onwards Nominal values Present value
  55,433 196,058 129,005 380,496 236,804
LT Amazonas (i) 30,811 155,509 128,902 315,222 182,512
Sublease “resale stores” – IFRS 16 24,622 40,549 103 65,274 54,292

 

 

(i) LT Amazonas

 

As a result of the contract signed with LT Amazonas, the Company signed network infrastructure sharing agreements with Telefónica Brasil S.A. In these agreements, the company and Telefónica Brasil S.A. share investments made in the Northern Region of Brazil. The company has monthly amounts receivable from Telefónica Brasil S.A. for a period of 20 years, adjusted annually by the IPC-A. The discount rate used to calculate the present value of the installments due is 12.56% per annum, considering the date of signing the agreement.

 

(ii) Subleases - Stores - IFRS 16

 

The Company, due to sublease agreements for third parties in some of its stores, recognized the present value of short and long term receivables, which are equal in value and term to the liability cash flows of the contracts called “resale stores”. The impact on lease liabilities is reflected in the group “Leases - Shops & Kiosks and Real Estate”.

 

 

 

 

 

 

 

 

 

79 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

Liabilities

 

    Parent Company   Consolidated
    June 2023   December 2022   December 2022
             
LT Amazonas (i)   334,701   327,505   327,505
Sale of Towers (leaseback) (ii)   1,713,985   1,730,214   1,730,214
Other (iv)   156,070   158,314   158,314
Subtotal   2,204,756   2,216,033   2,216,033
             
Other leases (iii):            
   Leases – Network Infrastructure   6,039,042   4,084,433   6,123,914
   Leases - Shops & kiosks & real estate   766,647   746,028   746,028
   Leases - Land (Network)   3,193,133   1,820,804   2,664,315
   Leases – Fiber     897,971   1,081,575   1,081,575
Subtotal leases IFRS 16 / CPC 06 (R2)   10,896,793   7,732,840   10,615,832
Total   13,101,549   9,948,873   12,831,865
             
Current portion   (2,106,253)   (1,353,869)   (2,257,211)
Non-current portion   10,995,296   8,595,004   10,574,654

 

The amount of interest paid in the period ended June 30, 2023 related to IFRS 16 / CPC 06 (R2) in the parent company was R$ 556,128 (R$ 743,907 in the year ended December 31, 2022) and in consolidated, R$ 1,001,311 in the year ended December 31, 2022.

 

In accordance with CPC 15 (R1), in a business combination, lease liabilities must be measured at the present value of the remaining lease balance as if the lease agreement acquired was a new lease agreement on the acquisition date. The impact on Lease Liabilities on the acquisition date (April 20, 2022) was R$ 2,929,449 (Note 1.2.1).

 

In 2023, the amount of R$ 57 million was paid, referring to fines applied related to the decommissioning process of sites acquired from Cozani (merged on April 01, 2023).

 

Changes to the lease liabilities are shown in note 37.

 

The table below presents the future payment schedule for the agreements in force, representing the estimated disbursements (nominal values) in the signed agreements. These nominal balances differ from those shown in the books since, in the case of the latter, the amounts are shown at present value:

 

Parent Company

  Up to June 2024 July 2024 to June 2029 July 2029 onwards Nominal values Present value
Total - Lease liability 3,045,899 8,931,318 9,356,997 21,334,214 13,101,549
           
LT Amazonas (i) 69,086 295,376 245,001 609,463 334,701
Sale and leaseback of Towers (ii) 305,958 1,455,413 1,768,940 3,530,311 1,713,985
Other (iii) 38,799 151,550 13,841 204,190 156,070
           
Total other leases (iv) 2,632,056 7,028,979 7,329,215 16,990,250 10,896,793
  Leases – Network infrastructure 1,300,160 4,033,783 4,130,940 9,464,883 6,039,042
  Leases - Shops & kiosks & real estate 206,893 538,205 487,376 1,232,474 766,647
  Leases - Land (Network) 614,385 1,974,874 2,710,899 5,300,158 3,193,133
  Leases – Fiber   510,618 482,117 - 992,735 897,971

 

 

80 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

i) LT Amazonas

 

The Company executed agreements for the right to use the infrastructure of companies that operate electric power transmission lines in Northern Brazil (“LT Amazonas”). The terms of these agreements are for 20 years, counted from the date on which the assets are ready to operate. The contracts provide for monthly payments to the electric power transmission companies, restated annually at the IPCA.

 

The discount rate used to calculate the present value of the installments due is 14.44% per annum, considering the signing date of agreements with transmission companies.

 

ii) Sale and leaseback of Towers

 

The Company entered into two Sales Agreements with American Tower do Brasil Cessão de Infraestruturas Ltda. (“ATC”) in November 2014 and January 2015 for up to 6,481 telecommunications towers then owned by TIM Celular, for an amount of approximately R$ 3 billion, and a Master Lease Agreement (“MLA”) for part of the space on these towers for a period of 20 years from the date of transfer of each tower, under a sale and leaseback transaction, with a provision for monthly rental amounts depending on the type of tower (greenfield or rooftop). The sales agreements provided for the towers to be transferred in tranches to ATC, due to the need to meet certain conditions precedent.

 

In total, 5,873 towers were transferred, being 54,336 and 5,483 in the years 2017, 2016 and 2015, respectively. This transaction resulted in a sales amount of R$ 2,651,247, of which R$ 1,088,390 was booked as deferred revenue and will be amortized over the period of the contract (note 23).

 

The discount rates used at the date of the transactions, ranging from 11.01% to 17.08% per annum, were determined based on observable market transactions that the company (the lessee) would have to pay on a similar lease and/or loan.

 

(iii) It is substantially represented by lease transactions in transmission towers.

 

(iv) Other leases:

 

In addition to lease agreements mentioned above, the Company also has lease agreements that qualify within the scope of IFRS 16 / CPC 06 (R2).

 

The present value, principal and interest value on June 30, 2023 for the above contracts was estimated month-to-month, based on the average incremental rate of the Company’s loans, namely 14.08% (13.24% in 2022).

 

Lease agreements within the scope of IFRS 16/CPC 06 (R2) acquired through the acquisition from Cozani were remeasured on the acquisition date to reflect the Company’s expectation of the lease term and average incremental rate of loans. The amount recorded on the acquisition date was R$ 2,929,449.

 

The lease amounts considered low-value or short-term (less than 12 months) were recognized as rental expenses and totaled R$ 16,357 on June 30, 2023 (R$ 40,723 on December 31, 2022).

 

 

81 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

18.Regulatory credits recoverable

 

These refer to Fistel credit amounts arising from the reduction of the client base, which may be offset by future changes in the base, or used to reduce future obligations, and are expected to be used in the reduction of the TFF contribution (operating supervision fee) due to Anatel.

 

On June 30, 2023, this credit is R$ 80,218 (R$ 26,519 on December 31, 2022).

19.Supplier

 

Accounts payable to suppliers are obligations payable for goods or services that were acquired in the usual course of business. They are initially recognized by fair value and subsequently measured by amortized cost using the effective interest rate method. Given the short maturity of these obligations, in practical terms, they are usually recognized at the value of the corresponding invoice.

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Supplier 3,650,934   4,385,356   4,237,229
           
Local currency 3,261,597   4,089,977   3,940,624
Suppliers of materials and services (i) 3,167,581   4,003,003   3,842,435
Interconnection (ii) 63,726   64,228   67,724
Roaming (iii) 211   603   1,857
Co-billing (iv) 30,079   22,143   28,608
           
Foreign currency 389,337   295,379   296,605
Suppliers of materials and services (i) 169,093   161,042   161,042
Roaming (iii) 220,244   134,337   135,563
           
Current portion 3,650,934   4,385,356   4,237,229

 

 

(i) Represents the amount to be paid to suppliers in the acquisition of materials and in the provision of services applied to the tangible and intangible asset or for consumption in the operation, maintenance and administration, in accordance with the terms of the contract between the parties.

 

(ii) Refers to as the use of the network of other fixed and mobile operators such cases where calls are initiated on the TIM network and terminated on the other operators.

 

(iii) Refers to calls made when the customer is outside their registration area and is considered a visitor on the other network.

 

(iv) Refers to calls made by the customer when choosing another long-distance operator.

 

The Company entered into contracts with banks to assist its suppliers who requested drawee risk operations. In such operations, suppliers transfer their credit rights against the Company to the banks, with no right of recourse, aiming to receive them in advance by applying a discount. After carrying out the operations, the Company currently has the banks as creditors of the notes assigned by the suppliers in the original value and term of the assigned credit rights, without any associated financial charge or benefit. Trade notes payable related to these operations remain classified under “suppliers”. On June 30, 2023, the Company has approximately R$ 116 million (R$ 260 million as of December 31, 2022) related to the drawee risk operation.

  

 

82 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

20.Authorizations payable

 

 

On June 30, 2023 and December 31, 2022, the Company and its subsidiary have the following commitments with ANATEL:

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Renewal of authorizations (i) 225,591   216,627   231,801
Updated ANATEL liability (ii) 184,0   186,307   186,307
Authorizations payable (iii)  1,190,444    1,255,282    1,255,282
  1,600,100   1,658,216   1,673,390
           
Current portion  (510,706)    (507,685)    (507,685)
Non-current portion 1,089,394   1,150,531   1,165,705

 

 

 

(i)To provide the SMP, the Company obtained authorizations of the right to use radio frequency for a fixed term, renewable.[13] In the option for the extension of the right of this use, it is due the payment of the amount of 2% on the net revenue of the region covered by the authorization that ends each biennium. As of June 30, 2023, the balances falling due related to the renewal of Authorizations in the parent company were R$ 184,065 (R$ 216,627 as of December 31, 2022) and represented the amount of R$ 231,801 as of December 31, 2022.

 

(ii)On December 5, 2014, the company signed the authorization term of the 700 MHz band and paid the equivalent of R$1,678 million, recording the remaining balance in the amount of R$ 61 million as commercial liability, according to the payment method provided for in the notice.

 

On June 30, 2015, the company filed a lawsuit questioning the collection of the excess nominal value of R$ 61 million, restated at GP-DI totaling R$ 226 million (R$ 186 million as of December 31, 2022), which is still pending trial.

 

(iii)As described in Note 16.f, in November 2021, TIM participated in the 5G Auction of the 2.3GHz, 3.5Ghz and 26Ghz radio frequency bands for the deployment of the 5th Generation mobile telephony, winning several lots in these radio frequencies. In December 2021, the Terms of Authorization were signed, characterizing the actual acquisition of the right over the lots of these radio frequencies.

 

For the amounts related to radio frequencies (R$ 884 million upon initial registration), Selic rate interest is levied, and the Company will make annual payments for a period of 20 years (1st installment paid in December 2021 and 2nd installment paid in December 2022 in the amounts of R$ 46,274 and R$ 52,005, respectively). Regarding amounts related to disbursement obligations with EAF and EACE entities (R$ 2,737 million upon initial registration, of which R$ 2,654 million net of adjustment do present value), there is a monetary restatement by IGP-DI, and disbursements will occur until 2024. The contributions to EAF were fully made in 2022 (R$ 1,090 million in February and R$ 1,133 million in May). The first contribution from EACE took place in April 2022, in the amount of R$ 137 million; the first contribution to EACE took place in October 2022, in the amount of R$ 134 million, while the third contribution took place in April 2023, in the amount of R$ 134 million (the three contributions totaled R$ 405 million).

 

[13] The renewal time varies according to the bid notice and extension conditions approved by the Agency.

 

83 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

On June 30, 2023, the outstanding balance, considering the amounts related to radio frequencies and contributions to be made in the EACE entity, is R$ 1,190 million (R$ 1,255 million as of December 31, 2022).

 

The authorizations payable on June 30, 2023 due in long-term is in accordance with the following schedule:

 

    Parent Company
    June 2023
  2024   247,628
  2025   55,689
  2026   55,689
  2027   55,689
  2028   55,689
  2029   55,689
  2030   55,689
>2031   507,632
    1,089,394

 

The primary authorizations held by TIM S.A. on June 30, 2023, as well as their expiration dates, are shown in the table below:

 

    Maturity date
Authorization instruments

800 MHz,

900 MHz and

1,800 MHz

Additional frequencies

1800 MHz

1900 MHz and

2100 MHz

(3G)

2500 MHz

V1 band

(4G)

2500 MHz

(P band)

(4G)

700 MHz

(4G)

2.3 GHz

(5G)

3.5 GHz

(5G)

26 GHz

(5G)

Amapá, Roraima, Pará, Amazonas and Maranhão Mar 2031 Dec 2032 Apr 2038 Oct 2027 Part of AR92 (PA), Feb 2024 Dec 2029 - Dec 2041 Dec 2031
Rio de Janeiro and Espírito Santo Mar 2031 ES - Dec 2032 Apr 2038 Oct 2027 Part of AR21 (RJ), Feb 2024 Dec 2029 Dec 2041 Dec 2041 Dec 2031 (lots I&J) & Dec 2041 (lot H)
Acre, Rondônia, Mato Grosso, Mato Grosso do Sul, Tocantins, Distrito Federal, Goiás, Rio Grande do Sul (except county of Pelotas and region) and municipalities of Londrina and Tamarana in Paraná Mar 2031 Dec 2032 Apr 2038 Oct 2027 Part of AR61 (DF), Feb 2024 Dec 2029 South – Dec 2041 Dec 2041 Dec 2031 (lots I&J) & Dec 2041 (lot H)
São Paulo Mar 2031 Previous balance - December 2032 Apr 2038 Oct 2027 - Dec 2029 - Dec 2041 Dec 2031 (lots I&J) & Dec 2041 (lot H)
                     

 

84 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

Paraná (except counties of Londrina and Tamarana) Nov 2028 (800MHz); Dec 2032 (900 & 1800MHz) Dec 2032 Apr 2038 Oct 2027

AR41, except Curitiba and the Metropolitan Region, Feb 2024

AR41, Curitiba and Metropolitan Region, July 2031

 Dec 2029 Dec 2041 Dec 2041 Dec 2031 (lots I&J) & Dec 2041 (lot H)
Santa Catarina 800 MHz – Nov 2028 1800 MHz – Dec 2032 Dec 2032 Apr 2038 Oct 2027 - Dec 2029 Dec 2041 Dec 2041 Dec 2031 (lots I&J) & Dec 2041 (lot H)
Municipality and region of Pelotas, in the state of Rio Grande do Sul 800 MHz – Nov 2028 1800 MHz – Dec 2032 - Apr 2038 Oct 2027 - Dec 2029 Dec 2041 Dec 2041 Dec 2031 (lots I&J) & Dec 2041 (lot H)
Pernambuco 800 MHz – Nov 2028 1800 MHz – Dec 2032 - Apr 2038 Oct 2027 Part of AR81, July 2031 Dec 2029 - Dec 2041 Dec 2031
Ceará 800 MHz – Nov 2028 1800 MHz – Dec 2032 - Apr 2038 Oct 2027 - Dec 2029 - Dec 2041 Dec 2031
Paraíba 800 MHz – Nov 2028 1800 MHz – Dec 2032 - Apr 2038 Oct 2027 - Dec 2029 - Dec 2041 Dec 2031
Rio Grande do Norte 800 MHz – Nov 2028 1800 MHz – Dec 2032 - Apr 2038 Oct 2027 - Dec 2029 - Dec 2041 Dec 2031
Alagoas Dec 2023 - Apr 2038 Oct 2027 - Dec 2029 - Dec 2041 Dec 2031
Piauí 800 MHz – Nov 2028 1800 MHz – Dec 2032 - Apr 2038 Oct 2027 - Dec 2029 - Dec 2041 Dec 2031
Minas Gerais (except the counties of Sector 3 of the PGO for 3G radio frequencies, leftovers and 5G) 800 MHz – Nov 2028 1800 MHz – Dec 2032 Dec 2032 Apr 2038 Oct 2027 Part of AR31, Feb 2030 Dec 2029 Dec 2041 Dec 2041 Dec 2031 (lots I&J) & Dec 2041 (lot H)
Bahia and Sergipe 800 MHz – Nov 2028 1800 MHz – Dec 2032 - Apr 2038 Oct 2027 - Dec 2029 - Dec 2041 Dec 2031

 

Terms already renewed for 15 years.

Only complementary areas in specific states.

 

Considering the Acquisition and consequent dissolution of Cozani, the authorizations held primarily by Cozani that currently make up the list of radio frequencies held by TIM, are shown in the table below:

 

  Maturity date
Authorization instruments 900 MHz 1,800 MHz

Additional frequencies

1800 MHz

1,900 MHz and

2,100 MHz

2,500 MHz

V2 band
SP (except AR 11) - Dec 2032 - - Oct 2027
SP (AR 11)   Dec 2032 - - Oct 2027
Paraná and Santa Catarina Dec 2032 Dec 2032 - - Oct 2027
Acre, Rondônia, Mato Grosso, Tocantins, Distrito Federal Dec 2032 Dec 2032 Dec 2032 Apr 2038 Oct 2027
Rio Grande do Sul Dec 2032 - Dec 2032 - Oct 2027
Mato Grosso do Sul (Sector 22) and Goiás (Sector 25) Dec 2032 Dec 2032 - Apr 2038 Oct 2027
Mato Grosso do Sul (except Sector 22) and Goiás (except Sector 25) Dec 2032 Dec 2032 Dec 2032 Apr 2038 Oct 2027
             
Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas Mar 2031 Mar 2031 - - Oct 2027
Rio de Janeiro and Espírito Santo Mar 2031 - - - Oct 2027
Amazonas, Roraima, Amapá, Pará, Maranhão, Minas Gerais and Espírito Santo - Mar 2031 - - Oct 2027
Bahia, Sergipe, Rio de Janeiro and Minas Gerais - - - Apr 2038 Oct 2027

 

Terms already renewed for 15 years.

 

85 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

21.Loans and financing

 

They are classified as financial liabilities measured at the amortized cost, and represented by non-derivative financial liabilities that are usually traded before maturity.

 

In the initial recognition, they are recorded at the fair value and after the initial recognition they are measured based on the effective interest rate method. Appropriations of financial expenses according to the effective interest rate method are recognized in income, under financial expenses.

 

 

        Parent Company   Consolidated
Description Currency Charges Maturity June 2023 December 2022 December 2022
KFW Finnvera (ii) USD Libor 6M+ 0.75% p.a. Jan 2024–Dec 2025 119,820 173,381 173,381
Scotia¹ (ii) USD 1.2410–3.2300% p.a. Dec 2023–Apr 2024 1,448,770 1,568,683 1,568,683
BNP Paribas (ii) BRL 7.0907% p.a. Jan 2024 514,870 515,265 515,265
Debêntures² (ii) BRL IPCA + 4.1682% p.a. (i) June 2028 1,838,606 1,771,797 1,771,797
BNDES (i) BRL IPCA + 4.2283% p.a. Nov 2031 393,791 394,139 394,139
BNB³ (i) BRL IPCA + 1.2228%–1.4945% Feb 2028 230,819 249,400 249,400
BNDES (i) BRL TJLP + 1.95% p.a. Aug 2025 242,899 297,160 297,160
Total       4,789,575 4,969,825 4,969,825
             
Current       (2,170,578) (1,264,967) (1,264,967)
Non-current       2,618,997 3,704,858 3,704,858

 

¹ Rates on outstanding debts on 12/31/2022 with Scotia Bank are between 1.4748% and 3.2300% p.a.

² The automatic decrease of up to 0.25 bps is estimated in remunerative interest and will comply with sustainable targets established in the indenture.

³ BNB interest rates already include a 15% discount for payment.

4 The debt with KFW Finninvera had its index amended, changing from Libor to SOFR, with the first fixing valid from January/2024.

 

Insurances

 

(i) Certain receivables from TIM S.A.;

 

(ii) Do not have a guarantee.

 

The Company's financing, contracted with BNDES, was obtained for the expansion of the mobile telephone network and has restrictive contractual clauses that provide for the fulfilment of certain financial and non-financial rates calculated every quarter. Financial indices are: (1) Shareholders' equity over total assets; (2) EBITDA on net financial expenses; (3) Total financial debt on EBITDA and (4) Short-term net financial debt to EBITDA. The Company has been complying with all the established ratios.

 

 

86 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

The table below shows the position of financing and available lines of credit:

 

         

 

 

Remaining amount

  

 

Type

 

Currency

 

Date of opening

 

Term

 

Total value

 Amount used up to June 30, 2023
BNB (i) IPCA Jan 2020 July 2023 752,479 503,351 249,128
Total R$:       752,479 503,351 249,128

 

Objective:

 

(i) Support to TIM's investment plan for the years 2020 to 2022 in the region of operation of Banco do Nordeste do Brasil.

 

Company’s loans and financing on June 30, 2023 due in long-term is in accordance with the following schedule:

 

2024     135,709
2025     200,358
2026     719,718
2027     719,718
2028     680,993
2029     55,714
2030     55,714
2031     51,073
      2,618,997

The nominal value of the loans and financing is consistent with their respective payment schedule.

 

    Nominal value
     
2023   1,069,820
2024   1,236,468
2025   200,358
2026   719,718
2027   719,718
2028   680,993
2029   55,714
2030   55,714
2031   51,071
    4,789,574

Fair value of loans

 

In Brazil, there is no consolidated long-term debt market with the characteristics verified in the financing obtained from KFW Finnvera, which has the Finnish development agency Finnvera as guarantor. Both are financing for the purchase of equipment and, therefore, have a character of subsidy and promotion of commercial activity between the company and certain suppliers. For the purposes of fair value analysis, considering the characteristics of this transaction, the company understands that its fair value is equal to that recorded on the balance sheet.

 

With respect to proceeds contracted with the Bank of Nova Scotia, BNP Paribas, Debentures and BNDES and BNB, the fair value of these loans is considered to be the present value of the long position of the swap contracts that protect the Company from changes in exchange rates and interest. The fair value of the operations on June 30, 2023 is, respectively, R$ 1,418,534, R$ 40,560, R$ 1,800,588, R$ 380,155 and R$ 214,085.

 

87 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

22.Taxes, fees and contributions payable

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Taxes, fees and contributions payable 2,600,183   2,140,218   2,291,267
           
Value added tax on goods and services - ICMS 218,583   212,043   222,120
ANATEL’s taxes and fees (i) 2,171,356   1,698,025   1,798,967
Imposto sobre Serviço [Service tax] - ISS 65,465   65,881   65,664
PIS/COFINS [Social integration program/Social security] 67,319   62,324   102,157
Other (ii) 77,460   101,945   102,359
           
Current portion (2,588,106)   (2,126,678)   (2,277,727)
Non-current portion 12,077   13,540   13,540

 

 

(i) In 2020, to minimize the impacts of the pandemic, Provisional Act 952, dated April 15, 2020, was enacted, authorizing the postponement of payment of taxes, such as TFF, Condecine and CFRP, in the amount of R$ 790 million, to August 31, 2020. In the third quarter of 2020, the Company made a partial payment in the amount of R$ 300 million referring to CFRP and Condecine, but due to a preliminary injunction in court, there was no need to pay the Fistel (TFF) in the amount of R$ 490 million, which remains outstanding until the final and unappealable decision.

 

 

In 2021, there was the partial payment of fees of approximately R$ 300 million related to CFRP and Condecine and the remaining amount of R$ 480 million related to 2021 Fistel (TFF) remains suspended, with no defined date for payment based on injunction also issued by the Regional Court of the 1st Region.

 

In 2022, there was the partial payment of fees of approximately R$ 300 million related to CFRP and Condecine and the remaining amount of R$ 482 million related to 2022 Fistel (TFF) remains suspended, with no defined date for payment based on injunction also issued by the Regional Court of the 1st Region.

 

Until December 31, 2022, there was the recognition of R$ 215.6 million in default interest on Fistel (TFF) amounts related to fiscal years 2020, 2021 and 2022 with suspended payment by preliminary injunction and R$ 52.6 million recorded in 2021 and R$ 163 million in 2022.

 

In 2023, the amount related to the principal of TFF is BRL 265 million and there was recognition of BRL 120 million in interest for late payment on the Fistel amounts (TFF) for the years 2020, 2021, 2022 and 2023, adjusted until June 30, 2023.

 

(ii) The breakdown of this account mainly refers to the company's adhesion to the Tax Recovery Program – REFIS from 2009 for payment of installments of the outstanding debts of federal taxes (PIS – Social Integration Program, COFINS – Contribution to Social Security Financing, IRPJ – Corporate Income Tax and CSLL – Social Contribution on Net Profit), whose final maturity will be on October 31, 2024.

 

88 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

23.Deferred revenue

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Deferred revenue 906,500   889,441   932,029
           
Prepaid services (i) 196,011   151,355   193,944
Government grants (ii) -   860   860
Anticipated revenue 41,350   43,561   43,561
Deferred revenues on sale of towers (iii) 653,683   680,731   680,731
Contractual liabilities (iv) 15,456   12,934   12,933
           
Current portion (268,686)   (222,829)   (265,417)
Non-current portion 637,814   666,612   666,612

 

 

(i) Referring to the recharge of voice credits and data not yet used by customers relating to prepaid system services that are appropriate to the result when the actual use of these services by customers.

 

 

(ii) Referring to the release of resources related to the financing line with BNDES (Investment Support Program-BNDES PSI). The sum of grants granted by BNDES up to June 30, 2023 is R$ 203 million. The Company has no outstanding balances as of June 30, 2023 (R$ 860 as of December 31, 2022). This amount was amortized by the lifespan of the financed asset and was appropriated in the group of “other net revenues (expenses)” (note 30).

 

(iii) Referring to the amount of revenue to be appropriated by the sale of the towers (note 17).

 

(iv) Contracts with customers. The table below includes information on the portion of trade accounts receivable, from which contractual assets and liabilities originate.

 

The balances on June 30, 2023 and December 31, 2022, presented below, represent the individual and consolidated amounts.

 

 

  June 2023   December 2022
       
Accounts receivable included in trade accounts receivable 2,306,389   2,182,403
Contractual assets 17,053   19,828
Contractual liabilities      (15,456)   (12,934)

 

The contracts with customers gave rise to the allocation of discounts under combined loyalty offers, where the discount may be given on equipment and / or service, generating a contractual asset or liability, respectively, depending on the nature of the offer in question.

 

Summary of the main variations in the period.

 

 

 

 

89 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

  Contractual assets (liabilities)
   
Balance on January 1, 2023 6,894
Additions 5,435
Write-offs      (10,732)
Balance at June 30, 2023 1,597

 

 

  Contractual assets (liabilities)
   
Balance at January 1, 2022 2,326
Additions 25,660
Write-offs (23,789)
Balance at June 30, 2022 4,197

 

 

 

The balances of contractual assets and liabilities that represent the individual and consolidated balances are expected to be realized according to the table below:

 

 

  2023 2024 2025
Contractual assets (liabilities) 3,629 (1,864)              (167)
       

 

The Company in line with paragraph 121 of IFRS 15, is not presenting the effects of information on customer contracts with terms of duration of less than 1 year.

 

24.Provision for judicial and administrative proceedings

 

The Company is an integral part in judicial and administrative proceedings in the civil, labor, tax and regulatory spheres, which arise in the normal course of its business.

 

The provision is constituted based on the opinions of the company's legal advisors and management, for amounts considered sufficient and adequate to cover losses and risks considered probable. Situations where losses are considered probable and possible are recorded and disclosure, respectively, by their updated values, and those in which losses are considered remote are not disclosed.

 

The amounts below represent individual and consolidated balances.

 

The provision for judicial and administrative proceedings constituted, updated, is composed as follows:

 

90 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Provision for judicial and administrative proceedings 1,288,667   1,112,153   1,112,156
           
Civil (a) 513,178   392,972   392,976
Labor (b) 215,276   214,450   214,450
Tax (c) 527,380   473,391   473,390
Regulatory (d) 32,833   31,340   31,340

 

The changes in the provision for judicial and administrative proceedings, consolidated amounts, are summarized below:

  December 2022   Additions, net of reversals   Payments   Currency update   June 2023
                   
  1,112,156   172,935   (161,290)   164,866   1,288,667
                   
Civil (a) 392,976   99,604   (91,126)   111,724   513,178
Labor (b) 214,450   44,872   (65,686)   21,640   215,276
Tax (c) 473,390   26,367   (3,014)   30,637   527,380
Regulatory (d) 31,340   2,092   (1,464)   865   32,833

 

  December 2021   Additions, net of reversals   Payments   Currency update   Jun/22
                   
  960,881   120,643   (110,567)   92,836   1,063,793
                   
Civil (a) 309,019   67,725   (60,359)   50,096   366,481
Labor (b) 192,132   38,240   (47,039)   15,871   199,204
Tax (c) 429,951   14,424   (3,036)   26,165   467,504
Regulatory (d) 29,779   254   (133)   704   30,604

The Company is subject to several legal actions and administrative procedures proposed by consumers, suppliers, service providers and consumer protection agencies and treasury agencies, which deal with various matters that arise in the normal course of the entities’ business. The main processes are summarized below:

 

a.Civil proceedings

 

a.1 Consumer lawsuits

 

The company is a party in lawsuits related to various claims filed by consumers, in the judicial and administrative spheres. The aforementioned actions in the amount provisioned of R$ 180,151 (R$ 179,132 on December 31, 2022) refer mainly to alleged improper collection, cancellation of contract, quality of services, unilateral contract amendment and undue negative entry.

 

a.2 Consumer Protection Agencies

 

TIM is a party to legal and administrative lawsuits filed by the Public Prosecutor's Office, Procon and other consumer protection agencies, arising from consumer complaints, in which, and among other topics, discusses: (i) alleged failures in the provision of network services; (ii) questions of quality in service; (iii) alleged violations of the SAC [customer service hotline] decree; (iv) alleged contractual violations; (v) alleged misleading advertising; and (vi) discussion of the collection of loyalty fines, in cases of robbery and theft of the device. The amount provisioned is equivalent to R$ 263,299 (R$ 168,987 as of December 31, 2022).

 

91 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

In the Public Civil Action 0019710-80.2013.8.07.0001, filed by the Public Prosecutor’s Office of the Federal District against TIM, which discusses the alleged intentional disconnection of calls from Infinity plan clients, an increase in the provision from R$ 10 million to R$ 50 million was made (updated amount of R$ 146 million restated), considering the decision issued on 03/15/2023 by the Superior Court of Justice (STJ), where the Interlocutory Appeal filed by TIM in the Motion for Reconsideration against Special Appeal 1832217/DF was dismissed.

 

a.3 Former trading partners

 

TIM is a defendant in lawsuits proposed by former trade partners claiming, among others, amounts on the basis of alleged non-compliance with agreements. The provisioned amount is R$ 35,336 (R$ 27,740 on December 31, 2022).

 

a.4 Other

 

TIM is a defendant in other actions of essentially non-consumer objects proposed by the most diverse agents from those described above, in which, among others, it is discussed: (i) share subscription; (ii) claims for civil liability indemnification; (iii) upon the alleged breach of the contract, the provisioned amounts are equivalent to R$ 32,391 (R$ 14,642 as of December 31, 2022).

 

a.5 Social and environmental and infrastructure

 

The Company is a party to lawsuits involving various agents who discuss aspects related to licensing, among which environmental licensing and infrastructure licensing (installation/operation). The amounts involved and provisioned are equivalent to R$ 2,001 (R$ 2,471 on December 31, 2022).

 

a.6 ANATEL

 

The Company is a party to lawsuits in front of ANATEL, in which it is discussed: (i) debit related to the collection of 2% of revenues from Value - Added Services–VAS and interconnection; (ii) pro-rata inflation adjustment applied to the price proposal defined in the notice for the use of 4G frequencies; and (iii) alleged non-compliance with service quality targets. There is no provisioned amount corresponding to these lawsuits as of June 30, 2023 and December 31, 2022.

 

 

b. Labor and social security lawsuits

 

 

These are processes involving several labor claims filed by both former employees, in relation to matters such as overtime, differences in variable remuneration and legal overcome in other contract funds, as well as by former employees of service providers, all of whom, taking advantage of the labor laws in force require it to keep the Company in compliance with labor obligations does not abide by contractors hired for that purpose. Regarding social security claims, the amounts refer to the legal difference in the levy of social security contributions on certain payments made by the company’s employees.

 

From the total of 1,667 Labor claims on June 30, 2023 (1,628 on December 31, 2022) filed against the company, the majority relate to claims involving former employees of service providers followed by lawsuits from employees of their own and social security. The provisioning of these claims totals R$ 215,276 updated monetarily (R$ 214,450 as of December 31, 2022).

 

 

92 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

c. Tax proceedings

 

         June 2023   December 2022
Federal taxes 270,351   260,206
State taxes 174,041   130,816
Municipal taxes 9,169   8,550
TIM S.A. proceedings (Purchase price allocation) 73,819   73,819
  527,380   473,391
         

 

The total recorded provision is substantially composed of the following processes whose indicated values are estimated by the indices established by the federal government for late taxes, being linked to the variation in the SELIC rate.

 

Federal taxes

 

The provision for TIM S.A. supports 100 proceedings and is mainly composed of the following lawsuits:

 

(i)The provision supports 60 lawsuits related to challenges involving the levy on CIDE, CPMF, CSLL, IRRF operations. Of this total, the amounts involved in the legal proceedings that seek recognition of the right not to collect the CPMF allegedly incident on simultaneous transactions of purchase and sale of foreign currency and exchange of account ownership arising from corporate incorporation, whose provisioned values, updated, equal to R$ 4,410 (R$ 4,303 on December 31, 2022).

 

(ii)The Company constituted a provision for a process aimed to collecting the pension contribution withheld at the rate of 11% to which, allegedly, payments made by the company to other legal entities should have been submitted as remuneration for various activities, whose provisioned and updated value is R$ 43,581 (R$ 42,171 on December 31, 2022).

 

 

(iii)There is a provision for three lawsuits related to FUST/FUNTTEL and its resulting ancillary obligations. Of these, two cases stand out in which the dispute mainly revolves around the spontaneous reporting of the fine for the payment of the FUST. The amount relating to the fine and interest on the contribution to the FUST for the year 2009, where the voluntary reporting benefit is not being recognized, provisioned and adjusted for inflation, is R$ 16,719 (R$ 16,169 as of December 31, 2022).

 

Additionally, in the second quarter of 2019, the Company constituted the provision for the FUST process, which seeks the unconstitutionality and illegality of the collection of FUST. Lawsuit for the recognition of the right not to collect Fust, failing to include in its calculation base the revenues transferred by way of interconnection and EILD (Dedicated Line Industrial Exploitation), as well as the right not to suffer the retroactive collection of the differences determined due to not observing sum 7/2005 of ANATEL, in the amount of R$ 66,165 (R$ 64,140 on December 31, 2022).

 

(iv)The company made a provision for federal compensation processes arising from a repurchase carried out in 2006, for which the documentary support was not robust enough after appraisals carried out. The provisioned and updated value is R$ 71,073 (R$ 67,815 on December 31, 2022).

 

 

 

93 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

State taxes

       

The provision for TIM S.A. supports 113 proceedings and is mainly composed of the following lawsuits:

 

(i)amounts involved in the assessments claiming the reversal of ICMS debts, as well as documentary support for the verification of appropriated credits by the Company, whose restated provisioned amounts are equivalent to R$ 36,910 (R$ 24,811 as of December 31, 2022).

 

(ii)amounts allegedly not offered for taxation for the provision of telecommunications services, whose updated amount was R$ 7,028 (R$ 6,757 as of December 31, 2022);

 

(iii)collections due to alleged differences in both goods receipts and shipments, in a quantitative inventory count, whose restated amounts are equivalent to R$ 18,147 (R$ 17,471 as of December 31, 2022);

 

(iv)amounts allegedly improperly credited relating to CIAP credits, whose updated amounts are equivalent to R$ 16,789 (R$ 11,943 on December 31, 2022);

 

(v)credits related to tax replacement operations, whose restated amounts total R$ 10,860 (R$ 10,392 on December 31, 2022).

 

(vi)alleged non-collection or allegedly undue appropriation of credits related to the ICMS rate differential (DIFAL), whose updated amounts total R$ 16,059 (R$ 16,220 on December 31, 2022).

 

(vii)charge on subscription fees without deductible, whose updated amounts is R$ 10,283 (without correspondent on December 31, 2022).

 

Municipal taxes

 

It is also worth noting the amounts involved in the assessments that questions the withholding and collection of the ISS-source of third-party services without employment relationship, as well as the collection of its own ISS corresponding to services provided in co-billing.

 

TIM S.A. proceedings (Purchase price allocation)

 

There are tax lawsuits arising from the acquisition of former Intelig (current TIM S.A.) due to the former parent company of the TIM Participações, which comprise the process of allocating the acquisition price of the former Intelig and amount to R$ 73,819 (R$ 73,819 as of December 31, 2022).

 

 

d. Regulatory processes

 

ANATEL filed administrative proceedings against the Company for: (i) non-compliance with certain quality indicators; (ii) non-compliance with other obligations derived from the terms of authorization and; (iii) non-compliance with the SMP, SCM and STFC regulations, among others.

 

On June 30, 2023, the amount indicated for the procedures for the determination of non-compliance with obligations (“PADOs”), considering the inflation adjustment, classified with risk of probable loss is R$ 32,833 (R$ 31,340 on December 31, 2022).

 

 

 

 

94 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

e. Judicial and administrative proceedings whose losses are assessed as possible

 

The Company has actions of a civil, labor, tax and regulatory nature involving risks of loss classified by its legal advisors and the administration as possible, for which there is no provision for legal and administrative proceedings constituted, and no adverse material effects are expected in the quarterly information, according to the values presented below:

 

 

   
  June 2023   December 2022
       
  20,770,529   20,123,806
       
Civil (e. 1) 1,542,244   1,418,874
Labor and Social Security (e. 2) 390,305   360,942
Tax (e. 3) 18,647,813   18,171,345
Regulatory (e. 4) 190,167   172,645

 

 

Legal and administrative proceedings whose losses are assessed as possible and monitored by Management are disclosed at their updated values.

 

The main lawsuits with risk of loss classified as possible, are described below:

 

e.1. Civil

 

    June 2023   December 2022
Consumer actions (e. 1. 1) 136,808   141,858
ANATEL (e.1.2) 308,853   293,203
Consumer protection bodies (e.1.3) 475,833   455,481
Former trading partners (e.1.4) 262,942   230,360
Social and environmental and infrastructure (e.1.5) 136,214   116,613
Other (e.1.6) 221,594   181,359
  1,542,244   1,418,874
               

 

 

e.1.1 Consumer lawsuits

 

They mainly refer to actions for alleged improper collection, cancellation of contract, quality of services, defects and failures in the delivery of devices and undue negative entry.

 

 

e.1.2 ANATEL

 

The Company is a party to lawsuits in front of ANATEL, in which it is discussed: (i) debit related to the collection of 2% of revenues from Value - Added Services–VAS and interconnection; (ii) pro-rata inflation adjustment applied to the price proposal defined in the notice for the use of 4G frequencies; and (iii) alleged non-compliance with service quality targets.

 

 

 

95 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

e.1.3 Consumer protection agencies

 

TIM is a party to legal and administrative lawsuits filed by the Public Prosecutor's Office, Procon and other consumer protection agencies, arising from consumer complaints, in which, and among other topics, discusses: (i) alleged failures in the provision of network services; (ii) alleged failure in the delivery of handsets; (iii) alleged non-compliance with state laws; (iv) hiring model and alleged improper charges of Value-Added Services-VAS; (v) alleged violations of the SAC decree; (vi) alleged contractual violations; and (vii) blocking of data.

 

e.1.4 Former trading partners

 

TIM is a defendant in actions proposed by several former trading partners in which are claimed, among others, values based on alleged contractual defaults.

 

 

e.1.5 Social and environmental and infrastructure

 

The Company is a party to lawsuits involving various agents that discuss aspects related to (1) environmental licensing and structure licensing (installation/operation) and (2) (i) electromagnetic radiation emitted by Telecom structures; (ii) renewal of land leases for site installation; (iii) dumping on leased land for site installation; (iv) presentation of registering data, among others.

 

 

e.1.6 Other

 

TIM is a defendant in other actions of essentially non-consumer objects proposed by the most diverse agents from those described above, in which, among others, it is discussed: (i) amounts supposedly due as a result of share subscription; (ii) claims for civil liability indemnification; (iii) alleged breach of contract.

 

 

e.2. Labor and Social Security

 

 

e.2.1. Social Security

 

The Company is a defendant in proceedings referring to the legal difference regarding the levy of social security contributions in certain payments of the company’s employees in the years 2005 to 2011, in the total restated amount of R$ 87,130 (R$ 80,456 on December 31, 2022).

 

e.2.2. Labor

 

There are 3,240 Labor claims as of June 30, 2023 (3,384 as of December 31, 2022) filed against the company and with possible risk, concerning claims involving former employees and employees of service providers in the amount of updated R$ 303,175 (R$ 280,486 as of December 31, 2022).

 

e.3. Tax

 

  June 2023   December 2022
       
  18,647,813     18,171,345
       
Federal taxes (e. 3.1)

3,156,387

  3,275,840
State taxes (e. 3. 2)

10,031,144

    9,640,939
Municipal taxes (e. 3. 3)

1,652,383 

  

1,587,910

FUST, FUNTTEL and EBC (e.3.4)

3,807,899 

     3,666,656

 

 

 

96 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

The values presented are corrected, in an estimated way, based on the SELIC rate. The historical amount involved is R$ 13,119,412 (R$ 13,014,078 as of December 31, 2022).

 

 

e.3.1. Federal taxes

 

The total amount assessed against TIM in relation to federal taxes is R$ 3,156,387 on June 30, 2023 (R$ 3,275,840 on December 31, 2022). Of this value, the following discussions stand out mainly:

 

(i)Allegation of alleged incorrect use of tax credits for carrying out a reverse merger, amortization of goodwill paid on the acquisition of cell phone companies, deduction of goodwill amortization expenses, exclusion of goodwill reversal, other reflections and disallowances of compensations and deductions paid by estimate, allegedly improper use of the SUDENE benefit due to lack of formalization of the benefit at the Internal Revenue Service (RFB), and failure to pay IRPJ and CSLL due by estimate. The amount involved is R$ 1,723,088 (R$ 1,579,257 on December 31, 2022). The Company was notified of the decision on April 28, 2021 and, as a result, the partial payment of R$ 1.4 billion was confirmed.

 

(ii)Offset method for tax losses and negative bases. The amount involved is R$ 299,726 (R$ 265,163 on December 31, 2022).

 

(iii)Collection of CSLL on currency changes arising from swap transactions accounted for by the cash regime. The amount involved is R$ 75,561 (R$ 73,307 on December 31, 2022).

 

(iv)Collection of IRRF [withholding income tax] on income of residents abroad, including those remitted by way of international roaming and payment to unidentified beneficiaries, as well as the collection of CIDE on payment of royalties on remittances abroad, including remittances by way of international roaming. The amount involved is R$ 305,858 (R$ 292,662 on December 31, 2022).

 

(v)Collection of IRPJ, PIS/COFINS and CSLL debits arising from non-homologation or partial homologation of compensations made by the company from credits of withholding taxes on financial investments and negative balance of IRPJ. The amount involved is R$ 307,853 (R$ 437,419 on December 31, 2022).

 

 

e.3.2. State taxes

 

The total amount charged against TIM S.A. in respect of state taxes on June 30, 2023 is R$ 10,031,144 (R$ 9,640,939 on December 31, 2022). Of this value, the following discussions stand out mainly:

 

(i)Non-inclusion in the ICMS calculation basis of unconditional discounts offered to customers, as well as a fine for the alleged failure to comply with a related accessory obligation, including for the failure to present the 60i record of the SINTEGRA file. The amount involved is R$ 1,288,199 (R$ 1,236,502 on December 31, 2022).

 

 

(ii)Use of tax benefit (program for the promotion of integrated and sustainable economic development of the Federal District - PRÓ-DF) granted by the taxing entity itself, but later declared unconstitutional, as well as alleged improper credit of ICMS arising from the interstate purchase of goods with tax benefit granted in the state of origin. The amount involved is R$ 415,623 (R$ 394,834 on December 31, 2022).

 

97 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

(iii)Credit reversal and extemporaneous credit related to acquisitions of permanent assets. The amount involved is R$ 732,607 (R$ 694,479 on December 31, 2022).

 

(iv)Credits and chargebacks of ICMS, as well as the identification and documentary support of values and information released in customer accounts, such as tax rates and credits granted in anticipation of future surcharges (special credit), as well as credits related to tax substitution operations and exempt and untaxed operations. On June 30, 2023, the involved amount is R$ 4,082,209 (R$ 3,835,583 on December 31, 2022).

 

(v)Use of credit in the acquisition of electricity directly employed in the production process of companies. The amount involved is R$ 159,734 (R$ 154,673 on December 31, 2022).

 

(vi)Alleged conflict between the information contained in ancillary obligations and the collection of the tax, as well as specific questioning of fine for non-compliance with ancillary obligations. The amount involved is R$ 937,989 (R$ 900,731 as of December 31, 2022).

 

(vii)Alleged lack of collection of ICMS due to the gloss of chargebacks related to the prepaid service, improper credit of ICMS in the outputs of goods allegedly benefited with reduction of the calculation base, as well as an allegation of improper non-inclusion of Value-Added Services (VAS) of the ICMS calculation base. The amount involved is R$ 658,062 (R$ 625,202 on December 31, 2022).

 

(viii)Launch of credits related to the return of mobile devices lent on loan. The amount involved is R$ 142,518 (R$ 136,243 on December 31, 2022).

 

(ix)Collection of ICMS related to subscription services and their alleged improper non-inclusion in the ICMS calculation base due to their nature. The amount involved is R$ 353,971 (R$ 330,805 on December 31, 2022).

 

 

 

e.3.3. Municipal taxes

 

The total assessed amount against TIM S.A. regarding municipal taxes with possible risk is R$ 1,652,383 on June 30, 2023 (R$ 1,587,910 on December 31, 2022). Of this value, the following discussions stand out mainly:

 

(i)Collection of ISS, as well as the punitive fine for the absence of the supposed tax due, on several revenue accounts of the company. The amount involved is R$ 1,362,928 (R$ 1,281,547 on December 31, 2022).

 

(ii)Collection of ISS on importation of services or services performed in other municipalities. The amount involved is R$ 89,935 (R$ 86,520 on December 31, 2022).

 

(iii)Constitutionality of the collection of the functioning supervision fee (TFF -Taxa de Fiscalização do Funcionamento) by municipal authorities of different localities. The amount involved is R$ 139,431 (R$ 149,764 on December 31, 2022).

 

 

 

 

98 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

e.3.4. FUST and FUNTTEL

 

The total amount charged against TIM S.A. in relation to the contributions to FUST and FUNTTEL with a possible risk rating is R$ 3,807,899 (R$ 3,666,656 on December 31, 2022). The main discussion, whose historical amount is R$ 2,209,383 (R$ 2,208,814 on December 31, 2022) involves the collection of the contribution to FUST and FUNTTEL (Fund for the technological development of Telecommunications) from the issuance by ANATEL of Sum no. 07/2005, aiming, among others, and mainly, the collection of the contribution to FUST and FUNTTEL on interconnection revenues earned by mobile telecommunications service providers, from the validity of Law 9998/2000.

 

e.4. Regulatory

 

ANATEL filed administrative proceedings against the Company for: (i) non-compliance with certain quality indicators; (ii) non-compliance with other obligations derived from the terms of authorization and; (iii) non-compliance with the SMP, SCM and STFC regulations, among others.

 

On June 30, 2023, the value indicated for the PADOs (procedure for determining non-compliance with obligations), considering the inflation adjustment, classified with possible risk was R$ 190,167 (R$ 172,645 on December 31, 2022).

 

On June 18, 2020, ANATEL's Board of Directors unanimously approved TIM's conduct adjustment term (TAC) 001/2020, which had been negotiated since 2014 with the regulator.

 

On June 19, 2020 the Board of Directors of the company approved the said TAC after final deliberation of the regulator and the signing of the term took place on June 25 of the same year. The agreement covers sanctions totaling approximately R$ 638,991 (updated at the time), filed as a result of commitments represented in improvement actions related to the macro-topics “Quality”, “Access Expansion”, “Rights and Guarantees of Users” and “Inspection”.

 

The Term includes actions to improve three pillars of action-customer experience, quality and infrastructure - through initiatives associated with improvements in the licensing process of stations, efficient use of numbering resources, evolution of digital service channels, reduction of Complaint Rates, repair of users and strengthening of transport and access networks, among others. In addition, it contemplates the additional commitment to bring mobile broadband, through the 4G network, to 350 municipalities with less than 30 thousand inhabitants thus reaching more than 3.4 million people. The new infrastructure was implemented in three years – more than 99% of the municipalities were served in the first two years and the remaining three municipalities were served in November 2022 – with the Company guaranteeing the sharing regime with the other operators.

 

With the closing of the 1st TAC Year, the following commitments were certified by the Agency: Reparation, Fund for the Defense of Diffuse Rights – FDD (phase 1) and Notifications; Numbering; Interconnection; INCOME TAX; IGQ; Impediment; Internal controls; LTE 700 MHz; New 4G; Backhaul; Licensing backlog; Scope Commitment; Personal assistance; Digital relationship; and Additional Commitments.

 

In June 2022, TIM concluded the 2nd year of the Conduct Adjustment Term (TAC) entered into with Anatel, having carried out the activities planned for strict compliance with the purpose of achieving the associated targets. In September 2022, the Impediment Commitments, Internal Controls and Additional Commitments received certificates from the Agency related to the 2nd year target. Structuring commitments (LTE 700 MHz; New 4G; Backhaul), Numbering Resources, Face-to-Face Service, Collaborative Portal, Digital Relationship and additional Commitments, all received statements of fulfillment of their respective targets in July 2023.

 

In October 2022, TIM and Anatel signed the Amendment to renegotiate the commitment related to Quality Indicators. Thus, the Perceived Quality Index (IQP) will be adopted to replace the General Quality Index (IGQ), discontinued by the Agency.

 

In June 2023, TIM concluded the 3rd year of the Conduct Adjustment Term (TAC) entered into with Anatel, having carried out the activities planned for strict compliance with the purpose of achieving the associated targets. Regarding the Additional Commitments, Anatel has already issued a statement of fulfillment of the obligation relating to the third year of the TAC, thus guaranteeing the general statement of fulfillment of the obligation for the implementation of SMP with 4G or later technology in 350 (three hundred and fifty) municipalities under the terms agreed in the TAC.

 

99 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

In July 2023, TIM started the fourth and final year of the Consent Decree. The Company will continue fully implementing the internal monitoring mechanisms through the quarterly report on the evolution of the schedules by the Governance Office in Management and Board of Directors.

 

The Company has met the TAC implementation schedule and has reported its understanding to Anatel in cases where the Agency indicates signs of non-compliance in the Procedures for Assessing the Non-Compliance with a Schedule Item (PADIC) that may be implemented.

 

Regarding the extension of the term of the authorizations to use the radio frequencies associated with the SMP, the Company becomes liable for the contractual burden on the net revenue arising from the service plans marketed under each authorization. However, since 2011 ANATEL began to include in the basis of calculation of said burden also the revenues obtained with interconnection, and from 2012, and subsequent years, the revenues obtained with Value-Added Services, among others. In the company's opinion, the inclusion of such revenues is improper because it is not expressly provided for in the terms of original authorizations, so the collections received are discussed in the administrative and/or judicial sphere.

 

25.Other liabilities
  Parent Company   Consolidated
  June 2023   December 2022   December 2022
           
Other liabilities  607,261   192,884   732,367
           
Provision for future asset decommissioning  236,889   23,659   289,606
Advance from customers  21,092   12,887   15,068
Onerous capacity contract (i) 150,559   -   178,532
Other provisions for risk 64,809   -   83,923
Other (ii) 133,912   156,338   165,238
Current portion  (136,978)   (21,327)   (132,954)
Non-current portion  470,283   171,557   599,413

 

(i) As part of the Cozani acquisition, a transferred capacity contract was identified in the transaction, where there is a take or pay obligation for a defined term. The amount recorded refers to the portion of capacity that will not be used for the remaining contractual term.

 

(ii) On June 23, 2022, Complementary Law 194 was enacted, which, in short, amended Law 5172, of October 25, 1966 (National Tax Code), and Complementary Law 87, of September 13, 1996 (Kandir Law), to consider essential goods and services related to fuels, electric power, communications and collective transport and, as a consequence, pointed to the reduction of ICMS on revenues earned by companies in such industries.

 

The Company will proactively transfer its effects to its customers, according to the nature of its plans.  However, such transfer depends on systemic developments that are in progress and will be concluded during the course of 2023.  On June 30, 2023, the amount of R$ 78.6 million (R$ 117 million on December 31, 2022) is recorded under “Other”, referring to the difference between the amount of the tax rate reduction defined in the Complementary Law and the amounts previously due, corresponding to the period necessary to carry out said systemic developments.

 

100 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

26.Shareholders’ equity

 

 

a. Share capital

 

The share capital is recorded by the amount effectively raised from the shareholders, net of the costs directly linked to the funding process.

 

The subscribed and paid-up share capital on June 30, 2023, is represented by 2,420,804,398 common shares (2,420,804,398 common shares on December 31, 2022).

 

The Company is authorized to increase its share capital, by resolution of the Board of Directors, regardless of statutory reform, up to the limit of 4,450,000,000 common shares.

 

 

 

b. Capital reserves

 

200 of Law No. 6,404/76, which provides for Joint-Stock Companies. This reserve is composed as follows:

 

  June 2023   December 2022
       
  419,413   408,602
       
Special Reserve of goodwill 353,604   353,604
Long-term incentive plan 65,809   54,998

 

 

b.1 Special Reserve of goodwill

 

The special reserve of goodwill was constituted from the incorporation of the net assets of the former parent company Tim Participações S.A. (note 16.d).

 

 

b.2 Long-term incentive plan

 

The balances recorded under these items represent the Company's expenses related to the long-term incentive program granted to employees (note 27).

 

 

c. Profit reserves

 

c.1 Legal Reserve

 

It refers to the allocation of 5% of the net profit for the year ended December 31 of each year, until the Reserve equals 20% of the share capital, excluding from 2018 the balance allocated to the tax incentive reserve. In addition, the company may cease to constitute the legal reserve when this, added to the capital reserves, exceeds 30% of the share capital.

 

 

101 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

This Reserve may only be used to increase capital or offset accumulated losses.

 

 

c.2 Statutory reserve for expansion

 

The formation of this reserve is foreseen in Paragraph 2 of art. 46 of the bylaws of the company and is aimed at the expansion of social business.

 

The balance of profit that is not compulsorily allocated to other reserves and is not intended for the payment of dividends is allocated to this reserve, which may not exceed 80% of the share capital. Reaching this limit, it will be up to the General Meeting to decide on the balance, distributing it to shareholders or increasing capital.

 

c. 3 Tax Benefit Reserve

 

The Company enjoys tax benefits that provide for restrictions on the distribution of profits. According to the legislation that establishes these tax benefits, the amount of tax that is no longer paid due to exemptions and reductions in the tax burden may not be distributed to members and will constitute a reserve of tax incentive of the legal entity. Such a reserve may only be used to absorb losses or increase the share capital. On June 30, 2023, the accumulated amount of benefits enjoyed by the Company amounts to R$ 2,124,411 (R$ 2,124,411 on December 31, 2022).

 

The said tax benefit basically corresponds to the reduction of the Corporate Income Tax (IRPJ) incident on the profit of the exploitation calculated in the units encouraged. The Company operates in the area of the defunct Superintendence of development of the Amazon (SUDENE / SUDAM), being the tax incentive awards granted by state of the Federation, for a period of 10 years, subject to renewal.

 

d. Dividends

 

Dividends are calculated in accordance with the bylaws and the Joint Stock Company Act.

 

According to its latest bylaws, approved on August 31, 2020, the company must distribute as a mandatory dividend each year ending December 31, provided that there are amounts available for distribution, an amount equivalent to 25% of Adjusted Net Profit.

 

As provided in the company's bylaws, unclaimed dividends within 3 years will revert to the company.

 

As of December 31, 2022, dividends and Interest on Shareholders’ Equity were calculated as follows:

 

  December 2022
   
Net profit for the year 1,670,755
(-) Non-distributable tax incentives (166,110)
(-) Constitution of legal reserve (75,233)
Adjusted Net Profit 1,429,412
   
Minimum dividends calculated on the basis of 25% of adjusted profit 357,353
   
Breakdown of dividends payable interest on equity:  
 Interest on shareholders’ equity 1,400,000
Total dividends and interest on shareholders´ equity distributed and proposed 1,400,000
Income tax withheld (IRRF) on shareholders´ equity (196,970)
Total dividends and interest on shareholders´ equity, net 1,203,030

 

 

102 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

Interest on shareholders' equity paid and/or payable is accounted for against financial expenses which, for the purposes of presenting the quarterly information, are reclassified and disclosed as allocation of net profit for the year, in changes in shareholders' equity.

 

During the year 2022, the amount of R$ 1,400,000 of interest on shareholders’ equity were distributed and additional amount of R$ 600,000 of dividends were proposed, which were approved at the General Meeting on June 30, 2023, totaling R$ 2,000,000. During 2023, amounts of R$ 520,000 of interest on shareholders’ equity were distributed. The amounts distributed in 2022 and 2023 are shown below:

 

 

Approval   Payment        Dividend
         
      03/22/2022   04/27/2022    195,000
      06/15/2022   07/20/2022    270,000
      09/12/2022   10/31/2022   235,000
      09/12/2022   01/24/2023   245,000
      12/12/2022   01/24/2023   455,000
      03/30/2023   04/18/2023   600,000
        2,000,000
         
      04/19/2023   05/09/2023    230,000
      06/12/2023   07/12/2023    290,000
        520,000

 

The balance on June 30, 2023 of the item “dividends and interest on shareholders' equity payable” totaling R$ 334,080 (R$ 661,494 on December 31, 2022) is composed of the outstanding amounts of previous years in the amount of R$ 44,080 (R$ 61,494 on December 31, 2022) in addition to the amount of R$ 290,000, settled on July 12, 2023 (R$ 600,000, distributed in 2023, approved during the Annual General Meeting held on March 30, 2023).

 

As set forth in the Law 6404/76 and the Bylaws of the Company, unclaimed dividends - as established in the Joint Stock Company Law, dividends and Interest on Shareholders' Equity declared and unclaimed by shareholders within 3 years, are reverted to shareholders' equity at the time of its prescription and allocated to a supplementary reserve to expand businesses.

 

For the statement of cash flow, Interest on Shareholders’ Equity and dividends paid to its shareholders are being allocated in the group of “financing activities”.

 

27.Long-Term Incentive Plan

 

 

2018-2020 Plan and 2021-2023 Plan

 

On April 19, 2018 and March 30, 2021, they were approved by the General Meeting of shareholders of TIM S.A. (TIM Participações S.A. before the merger by TIM S.A. on August 31, 2020), long-term incentive plans: “2018-2020 Plan” and “2021-2023 Plan” respectively, granted to senior directors and to those who occupy the position of key positions in the Company.

 

103 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

The 2018-2020 and 2021-2023 Plans provide for the granting of shares (performance shares and/or restricted shares).

 

The 2018-2020 and 2021-2023 Plans propose to grant participants shares issued by the Company, subject to the participant’s permanence in the Company (achievement of specific goals). The number of shares may vary, for more or for less, as a result of the performance and possibly of the dividend award, considering the criteria provided for in each Grant.

 

For the 2018-2020 and 2021-2023 plan, the term of validity has the same periodicity of 3 years related to its vesting. These Plans, in addition to considering the transfer of shares, also provides for the possibility of making payment to participants of the equivalent amount in cash.

 

The total amount of the expense was calculated considering the value of the shares and is recognized in the results over the vesting period.

 

 

Stock Program Table (Performance Shares and Restricted Shares)

                     
Identification of grant Shares granted Expiry date Grant Price Balance at the beginning of the period Granted during the period Transferred during the period Paid in cash Canceled during the period Balance at end of period
Volume vested Performance change Additional
dividends		 Billed Volume Performance change Additional
dividends		    
2021-2023 Plan
2022 Grant(s)		 1,227,712 Apr 2025 R$ 13.23 - 1,227,712 - - - - - - (44,565) 1,183,147
2021-2023 Plan
2021 Grant(s)		 3,431,610 May 2024 R$ 12.95 3,119,734 - (1,043,059) (87,605) (43,880) (2,883) (473) (130) (49,639) 2,024,153
2018-2020 Plan
2020 Grant(s)		 796,054 Apr 2023 R$ 14.40 519,098 - (252,024) (63,029) (22,884) (2,593) (649) (236) (3,641) 260,840
2018-2020 Plan
2019 Grant(s)		 930,662 July 2022 R$ 11.28 427,030 - (419,188) (137,064) (62,243) (7,842) (2,537) (1,195) - -
2018-2020 Plan
2018 Grant(s)		 849,932 Apr 2021 R$ 14.41 - - - - - - - - - -
Total 7,235,970     4,065,862 1,227,712 (1,714,271) (287,698) (129,007) (13,318) (3,659) (1,561) (97,845) 3,468,140
Weighted average price of the balance of grants R$ 13.15                  
                                       

 

 

The base price of the share of each share was calculated using the weighted averages of TIM S.A.’s share price. (TIM Participações S.A. before the merger by TIM S.A. on August 31, 2020), considering the following periods:

 

 

·        2018-2020 Plan – 1st Grant-traded volume and trading price of TIM Participações shares for the period 03/01/2018–03/31/2018.

 

·        2018-2020 Plan – 2nd Grant-traded volume and trading price of TIM Participações shares for the period 06/01/2019–06/30/2019.

 

·        2018-2020 Plan – 1st Grant-traded volume and trading price of TIM Participações shares for the period 03/01/2020–03/31/2020.

 

·        2021-2023 Plan – 1st Grant-traded volume and trading price of TIM S.A. shares for the period 03/01/2021–03/31/2021.

 

·        2021–2023 Plan – 2nd Grant - traded volume and trading price of TIM S.A. shares in the period from March 01, 2022 to March 31, 2022.

 

104 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

As of June 30, 2023, expenses related to said long-term benefit plans totaled R$ 10,811 (R$ 30,365 as of June 30, 2022).

 

 

 

Termination of the Share Buyback Program and Approval of a New Program

 

On June 12, 2023, the Board of Directors became aware of the termination of the Share Buyback Program approved at a meeting of the Company’s Board of Directors on May 5, 2021 and approved a new share buyback program of its own issuance. The new program will start as of the date of the Board of Directors’ resolution, remaining in effect until December 12, 2024, considering that acquisitions shall be made on the Stock Exchange (B3 S.A. – Brasil, Bolsa, Balcão), at market prices, observing the applicable legal and regulatory limits.

28.Net revenue

 

 

Revenue from services rendered

 

The principal service revenue derives from monthly subscription, the provision of separate voice, SMS and data services, and user packages combining these services, roaming charges and interconnection revenue. The revenue is recognized as the services are used, net of sales taxes and discounts granted on services. This revenue is recognized only when the amount of services rendered can be estimated reliably.

 

Revenues are recognized monthly, through billing, and revenues to be billed between the billing date and the end of the month (unbilled) are identified, processed, and recognized in the month in which the service was provided. These non-billed revenues are recorded on an estimated basis, which takes into account consumption data and number of days elapsed since the last billing date.

 

Interconnection traffic and roaming revenue are recorded separately, without offsetting the amounts owed to other telecom operators (the latter are accounted for as operating costs).

 

The minutes not used by customers and/or reload credits in the possession of commercial partners regarding the prepaid service system are recorded as deferred revenue and allocated to income when these services are actually used by customers.

 

The net service revenue item also includes revenue from new partnership agreements (financial, education and advertising), and the amount of revenue recognized in the period ended June 30, 2023 is R$ 67,962 (R$ 70,090 on June 30, 2022).

 

Regarding the financial partnership, the Arbitration Procedure No. 28/2021/SEC8 was filed before the Arbitration and Mediation Center of the Brazil-Canada Chamber of Commerce (“CCBC” and “Arbitration Procedure”, respectively), by TIM against Banco C6 S.A., Carbon Holding Financeira S.A. and Carbon Holding S.A (together, “Defendants”), through which the interpretation of certain clauses in the contracts that rule the partnership between the parties will be discussed. In case of loss, the partnership may be terminated.

 

 

 

105 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

Revenues from sales of goods

 

Revenues from sales of goods (telephones, mini-modems, tablets and other equipment) are recognized when the performance obligations associated with the contract are transferred to the buyer. Revenues from sales of devices to trading partners are accounted for at the time of their physical delivery to the partner, net of discounts, and not at the time of sale to the end customer, since the Company has no control over the good sold.

 

 Contract identification 

 

The Company monitors commercial contracts in order to identify the main contractual clauses and other elements present in the contracts that could be relevant in the application of the accounting rule IFRS 15 / CPC47 – Revenue from Contracts with Customers.

 

 

Identification of the performance obligation 

 

 Based on the review of its contracts, the Company mainly verified the existence of the following performance obligations:

 

 (i) sale of equipment; and

(ii) provision of mobile, fixed and internet telephony services.

 

Thus, the Company started to recognize revenues when (or as) the Company meets the performance obligation by transferring the asset or service promised to the customer; and the asset is considered transferred when or as the customer obtains control of that asset. 

 

 

 Determining and Allocating the Transaction Price to the Performance Obligation 

 

The Company understands that its commercial packages that combine services and sale of cellular handsets with discounts. In accordance with IFRS 15 / CPC 47, the Company is required to perform the discount allocation and recognize revenues related to each performance obligation based on their standalone selling prices. 

  

Cost to obtain contract 

 

All incremental costs related to obtaining a contract (sales commissions and other costs of acquisition from third parties) are recorded as prepaid expenses and (as described in Note 11) amortized over the same period as the revenue associated with this asset. Similarly, certain contract compliance costs are also deferred to the extent that they relate to performance obligations under the customer agreement, i.e. when the customer obtains control over the asset.

 

 

  Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
               
Net operating revenue 11,512,527   9,688,604   11,503,415   10,095,275
               
Gross operating revenue 16,200,727   13,507,536   16,239,128   14,014,445
               
Service revenue 15,496,673   12,907,650   15,535,074   13,414,559
Service revenue-Mobile 14,534,832   11,975,266   14,573,233   12,482,193
Service revenue - Landline 961,841   932,384   961,841   932,366
               
Goods sold 704,054   599,886   704,054   599,886
               
               
Deductions from gross revenue (4,688,200)   (3,818,932)   (4,735,713)   (3,919,170)
Taxes incidents (1,827,801)   (2,273,764)   (1,874,711)   (2,370,902)
Discounts granted (2,856,615)   (1,540,572)   (2,857,219)   (1,543,672)
Returns and other (3,784)   (4,596)   (3,783)   (4,596)

 

 

106 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

29.Operating costs and expenses

 

 

  Parent Company
  June 2023   June 2022
  Cost of services rendered and goods sold Selling expenses General and administrative expenses Total   Cost of services rendered and goods sold Selling expenses   General and administrative expenses Total
                   
  (5,987,277) (2,741,414) (866,595) (9,595,286)   (4,645,726) (2,510,247) (896,960) (8,052,933)
                   
Personnel (36,386) (417,433) (218,390) (672,209)   (28,490) (368,776) (212,382) (609,648)
Third party services (333,900) (1,076,140) (406,697) (1,816,737)   (310,350) (980,747) (404,015) (1,695,112)
Interconnection and means of connection (1,846,323) - - (1,846,323)   (1,214,652) - - (1,214,652)
Depreciation and amortization (3,026,270) (162,713) (203,055) (3,392,038)   (2,420,049) (143,665) (240,907) (2,804,621)
Taxes, fees and contributions (17,164) (389,157) (13,860) (420,181)   (19,638) (389,043) (11,272) (419,953)
Rentals and insurance (258,856) (72,825) (10,172) (341,853)   (244,558) (59,437) (9,490) (313,485)
Cost of goods sold (468,358) - - (468,358)   (406,634) - - (406,634)
Advertising and advertising - (301,102) - (301,102)   - (275,492) - (275,492)
Losses on doubtful accounts receivable - (286,767) - (286,767)   - (282,440) - (282,440)
Other (20) (35,277) (14,421) (49,718)   (1,355) (10,647) (18,894) (30,896)

 

 

  Consolidated
  June 2023   June 2022
  Cost of services rendered and goods sold Selling expenses General and administrative expenses Total   Cost of services rendered and goods sold Selling expenses   General and administrative expenses Total
                   
  (5,744,233) (2,852,794) (868,181) (9,465,208)   (4,977,401) (2,656,189) (897,449) (8,531,039)
                   
Personnel (36,386) (417,433) (218,390) (672,209)   (28,490) (368,776) (212,382) (609,648)
Third party services (340,063) (1,145,491) (408,252) (1,893,806)   (322,912) (1,069,618) (404,501) (1,797,031)
Interconnection and means of connection (1,376,316) - - (1,376,316)   (1,291,383) - - (1,291,383)
Depreciation and amortization (3,245,843) (162,766) (203,055) (3,611,664)   (2,706,191) (141,555) (240,907) (3,088,653)
Taxes, fees and contributions (17,271) (412,104) (13,885) (443,260)   (21,114) (429,592) (11,272) (461,978)
Rentals and insurance (259,545) (72,828) (10,178) (342,551)   (199,323) (59,437) (9,490) (268,250)
Cost of goods sold (468,358) - - (468,358)   (406,634) - - (406,634)
Advertising and advertising - (301,102) - (301,102)   - (279,271) - (279,271)
Losses on doubtful accounts receivable - (305,793) - (305,793)   - (297,293) - (297,293)
Other (451) (35,277) (14,421) (50,149)   (1,354) (10,647) (18,897) (30,898)

 

 

107 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

The company makes contributions to public or private pension insurance plans on a mandatory, contractual or voluntary basis while the employee is on the staff of the company. Such plans do not bring any additional obligations to the Company. If the employee ceases to be part of the company's staff in the period necessary to have the right to withdraw contributions made by sponsors, the amounts to which the employee is no longer entitled and which may represent a reduction in the company's future contributions to active employees, or a cash refund of these amounts, are released as assets.

 

30.Other net revenue (expense)

 

  Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
Revenues              
   Revenue from grant, net 860   5,162   860   5,162
   Fines on telecommunications services 35,265   33,397   35,492   34,907
   Revenue on disposal of assets  1,523    2,636    1,523   2,636
   Other revenue 31,662   32,013   31,655   32,713
  69,310   73,208   69,530   75,418
Expenses              
FUST/FUNTTEL (i) (77,200)   (64,448)   (78,366)   (67,350)
Taxes, fees and contributions (534)   (627)   (534)   (641)
Provision for legal and administrative proceedings, net of reversal              
(157,102)   (106,635)   (157,104)   (106,635)
Expenses on disposal of assets (1,040)   (4,245)   (1,040)   (4,245)
Other expenses (9,997)   (10,772)   (10,676)   (10,946)
  (245,873)   (186,727)   (247,720)   (189,817)
               
Other revenues (expenses), net (176,563)   (113,519)   (178,190)   (114,399)

 

(i) Representing the expenses incurred with contributions on the various telecommunications revenues due to ANATEL, according to current legislation.

 

31.Financial revenues
  Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
               
Financial revenues 670,652    725,704   691,401    732,283
Interest on financial investments 204,624   311,446   225,097   317,194
Interest received from clients 12,205   13,484   12,286   13,878
Swap interest 309,245   197,590   309,245   197,590
Interest on lease 13,860   13,822   13,860   13,822
Inflation adjustment (i) 108,989   92,065   108,989   92,065
Other derivatives (ii)   19,587   78,347   19,587   78,347
Other revenue 2,142   18,950   2,337   19,387

 

 

108 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

 

(i) A substantial part is related to monetary restatement on tax credits and judicial deposits.

 

(ii) This is mainly the difference between the market value and the cost of the share subscription options related to the operational partnership with Banco C6, started in 2020, to which the Company was entitled in the period due to the achievement of targets. Until June 30, 2023, the Company obtained the subscription right related to the 9th contractual target, generating an effect of R$ 19,587 (R$ 39,173 on June 30, 2022, related to 5th and 6th contract targets). The market value was calculated based on information available in the last investment transaction carried out by the partner and disclosed in the market. The disclosures of this derivative financial instrument are detailed in Note 37, which was measured at fair value, and will subsequently be measured in the Company’s income, considering the risks related to arbitration disclosed in Note 28.

32.Financial expenses

 

  Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
               
Financial expenses (1,429,089)   (1,348,355)   (1,337,014)   (1,423,953)
Interest on loans and financing  (50,097)    (32,366)    (50,097)    (32,366)
Interest on taxes and fees  (116,934)    (72,793)    (120,284)    (72,793)
Swap interest  (300,352)    (312,985)    (300,352)    (312,985)
Interest on lease  (613,700)    (523,212)    (512,126)    (590,047)
Inflation adjustment (i)  (202,616)    (253,519)    (207,793)    (258,417)
Discounts granted  (24,512)    (22,687)    (24,512)    (22,901)
Other expenses  (120,878)    (130,793)    (121,850)    (134,444)

 

 

(i) A major portion related to: (i) Monetary restatement of lawsuits, in the amount of R$ 165,086 - see note 25 (R$ 92,836 as of June 30, 2022); and (ii) inflation adjustment on loans and financing and authorizations, in the amount of R$ 27,355 (R$ 97,457 on June 30, 2022).

 

33.Foreign exchange variations, net

 

 

 

  Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
Revenues              
Loans and financing (i) 143,104   26,854   143,104   26,854
Suppliers 20,253   23,452   20,253   23,452
Swap (ii) 10,698   13,767   10,698   13,767
Other 9,521   20,867   9,521   20,867
  183,576   84,940   183,576   84,940
Expenses              
Loans and financing (i) (10,698)   (13,758)   (10,698)   (13,758)
Suppliers (6,061)   (10,650)   (6,061)   (10,650)
Swap (ii) (143,104)   (26,762)   (143,104)   (26,762)
               
Other (27,280)   (29,040)   (27,280)   (29,040)
  (187,143)   (80,210)   (187,143)   (80,210)
               
Foreign exchange variations, net (3,567)   4,730   (3,567)   4,730

 

(i) It mainly refers to foreign exchange variation on loans and financing in foreign currency.

 

(ii) Referring to derivative financial instruments to mitigate risks of foreign exchange variations related to foreign currency debts (Note 37).

 

109 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

34.Earnings per share

 

The balances presented below represent the Parent Company and Consolidated amounts.

 

(a)       Basic

 

Basic profit per share is calculated by dividing the profit attributable to the shareholders of the company by the weighted average amount of shares issued during the period.

 

 

    June 2023   June 2022
         
Income attributable to the shareholders of the company   1,038,908   684,903
         
Weighted average number of common shares issued (thousands)   2,420,811   2,420,462
         
Basic earnings per share (expressed in R$)   0.43   0.28

 

 

(b)       Diluted

 

Diluted earnings per share are calculated by adjusting the weighted average amount of shares outstanding to assume the conversion of all potential dilutive shares.

 

    June 2023   June 2022
         
Income attributable to Company's shareholders   1,038,908   684,903
         
Weighted average number of common shares issued (thousands)   2,420,811   2,420,682
         
Diluted earnings per share (in R$)   0.43   0.28

 

 

On June 30, 2023, according to the calculation of diluted earnings per share, the Company did not have potentially dilutive shares (220,000 on June 30, 2022) related to the long-term incentive plan, as mentioned in Note 27.

 

 

110 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

35.Balances and transactions with related parties

 

The balances of transactions with Telecom Italia Group companies, subsidiaries and associated companies are as follows:

 

Assets

    Parent Company   Consolidated
    June 2023   December 2022   December 2022
             
Telecom Italia Sparkle (i)   1,729   2,770   2,770
Gruppo Havas (vi)   49,911   -   -
TI Sparkle (iii)   1,927   1,494   1,494
TIM Brasil (vii)   22,664   22,790   22,790
Telecom Italia S.p.A. (ii)   4,524   2,086   2,086
I-Systems (ix)   9,657   14,762   14,762
Cozani (x)   -   456,185   -
Other   674   674   674
Total   91,086   500,761   44,576

 

 

                               Liabilities
    Parent Company   Consolidated
    June 2023   December 2022   December 2022
             
Telecom Italia S.p.A. (ii)   94,363   85,845   85,845
Telecom Italia Sparkle (i)   4,654   4,436   4,436
TI Sparkle (iii)   8,711   9,445   9,445
TIM Brasil (iv)   10,858   10,858   10,858
Vivendi Group (v)   1,822   3,457   3,457
Gruppo Havas (vi)   76,189   65,618   65,618
I-Systems (viii)   44,998   49,391   49,391
Cozani (x)   -   383,621   -
Italtel (xi)   21,164   13,348   13,348
Other   14,743   8,862   8,862
             

Total

   277,502   634,881   251,260
               

 

 

 

 

111 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

 

 

                    Revenue    
    Parent Company   Consolidated
    June 2023   June 2022   June 2023   June 2022
                 
Telecom Italia S.p.A. (ii)   4,246   1,385   4,246   1,385
Telecom Italia Sparkle (i)   1,793   1,657   1,793   1,657
TI Sparkle (iii)   490   1,086   490   1,086
 I Systems (ix)   16,778   17,945   16,778   17,945
Cozani (x)   -   2,597   -   -
Total   23,307   24,670   23,307   22,073
                 

 

 

                                            Cost / Expense    
          Parent Company   Consolidated
    June 2023   June 2022   June 2023   June 2022
                 
Telecom Italia S.p.A. (ii)   62,795   49,784   62,795   49,784
Telecom Italia Sparkle (i)   9,406   7,686   9,406   7,686
TI Sparkle (iii)   8,761   9,049   8,761   9,049
Vivendi Group (v)   3,037   2,221   3,037   2,221
Gruppo Havas (vi)   265,813   154,865   265,813   154,865
I Systems (viii)   192,331   177,658   192,331   177,658
Cozani (x)   -   3,730   -   -
Other   11,553   12,116   11,553   12,116
Total   553,696   417,109   553,696   413,379

 

 

(i)amounts refer to roaming, Value-Added Services – VAS, transfer of means and international voice-wholesale.
(ii)The amounts refer to international roaming, technical assistance and value added services – VAS and licensing for the use of a registered trademark, granting TIM. S.A. the right to use the “TIM” brand upon payment of royalties in the amount of 0.5% of the Company’s net revenue, with payment made on a quarterly basis.

 

(iii)Values refer to link rental, EILD rental, media rental (submarine cable) and signalling service.

 

(iv)Mainly refer to judicial deposits made on account of labor claims and transfers of employees.

 

(v)the values refer to Value Added Services-VAS.

 

112 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

(vi)From the values described above, in the result, they refer to advertising services, of which, R$ 243,227 (R$ 111,765 on June 30, 2022), are related to media transfers.

 

(vii)Refer to judicial deposits made on account of labor claims.

 

(viii)The amounts refer to fiber infrastructure capacity services.

 

(ix)The amounts are related to services provided by TIM S.A., mainly related to network operation and maintenance in the scope of Transition Service Agreement, signed when closing the transaction.

 

(x)Refer to contracts related to the operation of telecommunications services, including interconnection, roaming, assignment of means and use of radio frequencies, in addition to co-billing agreements.

 

(xi)The amounts refer to the development of the software used in the billing of telecommunications services

 

 

The company has social investment actions that include donations, projects developed by the Tim Institute and sponsorships. On June 30, 2023, the Company invested R$ 6,006 (R$ 2,577 on June 30, 2022).

 

Sales and purchases involving related parties are carried out at prices equivalent to those practiced in the market. Outstanding balances at the end of the year are not linked to guarantees and are settled in cash. There were no guarantees provided or received in connection with any accounts receivable or payable involving related parties.

 

Balances on equity accounts are recorded in the groups: trade accounts receivable, prepaid expenses, suppliers and other current assets and liabilities.

 

36.Management remuneration

 

The key management personnel includes: statutory directors and the Board of Directors. The payment of key management personnel for the provision of their services is presented below:

 

  June 2023   June 2022
       
Short-term benefits 11,536   15,359
Other long-term benefits -   -
Share-based remuneration 4,187   23,061
  15,723   38,420
37.Financial instruments and risk management

 

Among the financial instruments registered in the Company, there are derivatives that are financial assets or liabilities measured at fair value through profit or loss. At each balance sheet date such assets/liabilities are measured at their fair value. Interest, monetary correction, foreign exchange variation and variations arising from the fair value measurement, where applicable, shall be recognized in the result when incurred, under the line of financial revenues or expenses.

 

Derivatives are initially recognized at fair value on the date the derivative agreement is entered into, and are subsequently remeasured at fair value. The Company does not apply “hedge accounting”.

 

113 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

The company carries out transactions with derivative financial instruments, without speculative purposes, only with the aim of i) reducing risks related to foreign exchange variation and ii) managing interest rate exposure. The Company's derivative financial instruments are specifically represented by swap and options contracts.

 

The company's financial instruments are being presented in compliance with IFRS 9 / CPC 48.

 

The main risk factors that the company is exposed to are as follows:

 

(i) Exchange rate risks

 

The exchange rate risks relate to the possibility of the Company computing i) losses derived from fluctuations in exchange rates by increasing the balances of debt with loans and financing obtained in the market and the corresponding financial expenses or ii) increase in cost in commercial contracts that have some type of link to foreign exchange variation. In order for these types of risks to be mitigated, the company performs: swap contracts with financial institutions with the aim of canceling the impacts arising from the fluctuation of exchange rates on the balance sheet and financial result and commercial contracts with foreign exchange band clauses with the aim of partially mitigating foreign exchange risks or derivative financial instruments to reduce the remaining risks of foreign exchange exposure in commercial contracts.

 

On June 30, 2023 and December 31, 2022, the Company's loans and financings indexed to the variation of foreign currencies are fully protected, both in terms and in value, by swap contracts. Gains or losses on these swap contracts are recorded in the company's earnings.

 

(ii) Interest rate risks

 

Interest rate risks relate to:

 

The possibility of variations in the fair value of the loans obtained by the company indexed to TJLP, IPCA, fixed rate and/or TLP, when such rates pose a risk to the company’s perspective of not corresponding proportionally to the rates relating to Interbank Certificates of Deposit (CDI). The Company opted to hedge the exposure linked to the IPCA arising from the issuance of debentures, financing to BNDES (FINAME) and BNB and the exposure to a fixed rate linked to the debt with BNP Paribas, all of them until maturity.

 

The possibility of an unfavorable movement in interest rates would cause an increase in the financial expenses of the Company, as a result of the share of the debt and the passive positions that the Company has in swap contracts linked to floating interest rates (percentage of the CDI). However, on June 30, 2023 and December 31, 2022, the Company maintains its financial resources applied to Interbank Certificates of Deposit (CDI), which substantially reduces this risk.

 

(iii) Credit risk inherent in the provision of services

 

The risk is related to the possibility of the company computing losses derived from the inability of the subscribers to honor the payments of the invoiced amounts. To minimize this risk, the company preventively performs credit analysis of all orders imputed by the sales areas and monitors the accounts receivable of subscribers, blocking the ability to use services, among other actions, if customers do not pay their debts. There are no customers who have contributed more than 10% of net accounts receivable on June 30, 2023 and December 31, 2022 or revenues from services rendered during the periods ended June 30, 2023 and June 30, 2022.

 

 

(iv) Credit risk inherent in the sale of telephone sets and prepaid telephone cards

 

 

114 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

The group's policy for the sale of telephone devices and the distribution of prepaid telephone cards is directly related to the credit risk levels accepted during the normal course of business. The selection of partners, the diversification of the portfolio of accounts receivable, the monitoring of loan conditions, the positions and limits of orders established for traders, the formation of collateral are procedures adopted by the company to minimize possible collection problems with its trading partners. There are no customers who contributed more than 10% of merchandise sales revenue during the periods ended June 30, 2023 and 2022. There are no customers who contributed more than 10% of the net receivables from the sale of goods as of June 30, 2023 and December 31, 2022.

 

 

(v)       Liquidity risk

 

Liquidity risk arises from the need for cash before the obligations assumed. The company structures the maturities of its non-derivative financial instruments and their respective derivative financial instruments so as not to affect liquidity. See Notes 17 and 21.

 

The liquidity and cash flow management of the Company are carried out daily to ensure that the operational cash generation and prior fund raising, when necessary, are sufficient to maintain its schedule of operational and financial commitments.

 

All financial investments of the Company have daily liquidity and the Management may, even in specific cases: i) revise the dividend payment policy; ii) issue new shares; and/or iii) sell assets to increase liquidity.

 

(vi) Financial credit risk

 

The cash flow forecast is performed by the Finance Executive Board, which monitors the continuous forecasts of the liquidity requirements to ensure that the Company has enough cash to satisfy its operating needs. This forecast takes into account investment plans, debt financing, compliance with contractual clauses, compliance with internal goals and, if applicable, external regulatory or legal requirements.

 

The risk is related to the possibility of the Company posting losses resulting from difficulties in the redemption of short-term interest earning bank deposits and swap contracts, due to possible insolvency of counterparties. The company minimizes the risk associated with these financial instruments by maintaining operations only with financial institutions of recognized market strength, in addition to following a policy that establishes maximum levels of risk concentration per financial institution.

 

Fair value of derivative financial instruments:

 

The derivative financial instruments are presented below:

 

    June 2023   December 2022
    Assets Liabilities   Assets Liabilities
             
Derivative transactions   282,895 353,306   276,951 393,372
Other derivatives (i)   482,082 -   624,671 -
    764,977 353,306   901,622 393,372
             
Current portion   (265,543) (353,306)   (239,189) (343,142)
Non-current portion   499,434 -   662,433 50,230

 

 

115 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

Other derivatives are instruments of share subscription options represent the option of the Company to subscribe 4.26% of the shares of C6 capital on June 30, 2023 (5.52% on December 31, 2022), where the Group/Company paid a share subscription premium in the amount of R$ 24.7 million until June 30, 2023 (R$ 23.9 million until December 31, 2022). As required by IFRS 9 / CPC 48, the financial instrument must be valued at its fair value that on June 30, 2023 and December 31, 2022 corresponds to R$ 482 million and R$ 624 million, respectively. The change for the period refers to the conversion of shares, pursuant to Note 12.

 

The impact of the mark-to-market is calculated by the difference in the fair value of the option less the amount paid for the share subscription premium. This financial instrument was measured at fair value and subsequently revaluated and possible changes recorded in the Company’s financial income (loss) for the year, considering the arbitration risks disclosed in Note 28.

 

The long-term derivative financial instruments at June 30, 2023 are due in accordance with the following schedule:

 

    Assets
     
  2024   13,855
  2025   485,579
>2026   -
    499,434

 

Non-derivative financial liabilities are substantially composed of accounts payable with suppliers, dividends payable and other obligations, the maturity of which will occur in the next 12 months, except for loans and financing and leases, the nominal flows of payments of which are disclosed in Notes 21 and 17.

 

Financial instruments measured at fair value:

 

  June 2023
  Level 1   Level 2   TOTAL
           
Total assets 285,051   927,935   1,212,986
           
Financial assets at fair value through profit or loss 285,051   927,935   1,212,986
           
Derivative financial instruments -   282,895   282,895
Other derivatives -   482,082   482,082
Securities 285,051   -   285,051
Other financial assets -   162,958   162,958
           
Total liabilities -   353,306   353,306
           
Financial liabilities at fair value through profit or loss -   353,306   353,306
           
Derivative financial instruments -   353,306   353,306

 

          
           

 

 December 2022
  Level 1   Level 2   TOTAL
           
Total assets 2,203,564    901,622   3,105,186
           
Financial assets at fair value through profit or loss 2,203,564   901,622   3,105,186
           
Derivative financial instruments -   276,951   276,951
Other derivatives     624,671   624,671
Securities 2,203,564   -   2,203,564
           
Total liabilities -   393,372   393,372
           
Financial liabilities at fair value through profit or loss -   393,372   393,372
           
Derivative financial instruments -   393,372   393,372

 

          

 

 

116 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

The fair value of financial instruments traded on active markets is based on market prices quoted on the balance sheet date. A market is seen as active if quoted prices are ready and regularly available from a stock exchange, distributor, broker, industry group, pricing service, or regulatory agency, and those prices represent real market transactions and that occur regularly on purely commercial basis. These instruments are included in Level 1. The instruments included in Level 1 mainly comprise the equity investments of bank certificates of deposit (CDB) and committed classified as securities for trading.

 

The fair value of financial instruments that are not traded on active markets (e.g. over-the-counter derivatives) is determined through the use of valuation techniques. These valuation techniques maximize the use of data adopted by the market where it is available and rely as little as possible on entity-specific estimates. If all relevant information required for the fair value of an instrument is adopted by the market, the instrument is included in Level 2.

 

If relevant information is not based on data adopted by the market, the instrument is included in Level 3.

 

Specific valuation techniques used to value financial instruments include:

 

·Quoted market prices or quotes of financial institutions or brokers for similar instruments.
·The fair value of interest rate swaps is calculated by the present value of estimated future cash flows based on the yield curves adopted by the market.
·Other techniques, such as analysis of discounted cash flows, available data of the last relevant transaction and analysis of results based on multiples of similar companies, are used to determine the fair value of the remaining financial instruments.

 

The fair values of currency derivative financial instruments and interest rates of the Company were determined by means of future cash flows (active and passive position) using the contracted conditions and bringing these flows to present value through discounts for the use of future interest rate disclosed by market sources. Fair values were estimated at a specific time, based on available information and own evaluation methodologies.

 

117 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

Financial assets and liabilities by category

 

The financial instruments of the company by category can be summarized as follows:

 

June 30, 2023

Parent Company

  Measured at amortized cost   Fair value through profit or loss   Total
           
Assets, as per balance sheet 8,609,721   1,212,987   9,822,708
           
Derivative financial instruments -   282,895   282,895
Other derivatives -   482,082   482,082
Trade accounts receivable and other accounts receivable, excluding prepayments 3,804,006   -   3,804,006
Securities -   285,052   285,052
Cash and cash equivalents 3,067,012   -   3,067,012
Leases 236,804   -   236,804
Judicial deposits 1,421,681   -   1,421,681
Other financial assets -   162,958   162,958
Other amounts recoverable 80,218   -   80,218
           
Liabilities, as per balance sheet 23,367,875   353,306   23,721,181
           
Loans and financing 4,789,574   -   4,789,574
Derivative financial instruments -   353,306   353,306
Suppliers and other obligations, excluding legal obligations 4,394,381   -   4,394,381
     Lease liabilities 13,101,549   -   13,101,549
     Other contractual obligations 748,291   -   748,291
     Dividends and interest on shareholders' equity payable 334,080   -   334,080
           

 

 

118 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

 

December 31, 2022

 

Parent Company Consolidated

  Measured at amortized cost   Fair value through profit or loss   Total   Measured at amortized cost   Fair value through profit or loss   Total
                       
Assets, as per balance sheet 7,405,960   3,105,186   10,511,146   7,851,215   3,105,186   10,956,401
                       
Derivative financial instruments -   276,951    276,951   -   276,951    276,951
Other derivatives -   624,671    624,671   -   624,671    624,671
Trade accounts receivable and other accounts receivable, excluding prepayments

 

3,978,135

  

 

-

  

 

3,978,135

 

 

3,659,777

  

 

-

  

 

3,659,777

Securities -   2,203,564    2,203,564   -   2,203,564    2,203,564
Cash and cash equivalents 1,785,100   -    1,785,100   2,548,713   -    2,548,713
Leases 238,646   -    238,646   238,646   -    238,646
Judicial deposits 1,377,560   -   1,377,560   1,377,560   -   1,377,560
Other amounts recoverable 26,519   -   26,519   26,519   -   26,519
                       
Liabilities, as per balance sheet 20,713,839   393,372   21,107,211   23,448,704   393,372   23,842,076
                       
Loans and financing  4,969,825        4,969,825    4,969,825        4,969,825
Derivative financial instruments  -    393,372    393,372    -    393,372    393,372
Suppliers and other obligations, excluding legal obligations

 

4,385,356

  

 

-

  

 

4,385,356

  

 

4,237,229

  

 

-

  

 

4,237,229

     Lease liabilities  9,948,873    -    9,948,873    12,831,865    -   12,831,865
     Other contractual obligations 748,291   -   748,291   748,291   -   748,291
     Dividends and interest on shareholders' equity payable 661,494   -   661,494   661,494   -   661,494

 

 

Regular purchases and sales of financial assets are recognized on the trading date - the date on which the Company undertakes to buy or sell the asset. Investments are initially recognized at fair value. After initial recognition, changes in fair value are recorded in the profit and loss for the year, in the financial revenues and expenses’ group.

 

 

Financial risk hedge policy adopted by the Company

 

The Company's policy establishes that mechanisms must be adopted to protect against financial risks arising from the contracting of financing in foreign currency or indexed to the interest rate, in order to manage said exposure.

 

The contracting of derivative financial instruments against foreign exchange exposure shall occur simultaneously with the contracting of the debt that gave rise to such exposure. The level of coverage to be contracted for such foreign exchange exposures shall be 100% of the risk, both in terms and in value. To cover interest rates, it is up to the Company to elect or not to contract a hedging mechanism, as provided for in the internal policies.

 

On June 30, 2023, there are no margins or guarantees applied to transactions with derivative financial instruments of the Company.

 

 

119 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

Based on mandatory market developments, we changed the index of our debt with KFW/Finninvera from Libor to SOFR.

 

Likewise, for maintaining the hedge, we migrated the swap transaction with Bank of America, which until then was indexed to Libor and became indexed to SOFR as of January 2024. Transition without any cash effect and with the same cost as a percentage of the original CDI.

 

The selection criteria of financial institutions follow parameters that take into account the rating provided by renowned risk analysis agencies, shareholders’ equity and levels of concentration of operations and resources.

 

The operations with derivative financial instruments contracted by the Company and in force on June 30, 2023 and December 31, 2022 are shown in the following table:

 

 

June 30, 2023

 

                COUNTERPARTY                      % Coverage                       AVERAGE SWAP RATES                   
Currency SWAP type

 

Debt

 SWAP Total Debt Total swap
(long position)¹		   Long position Short position
USD LIBOR x DI

KFW/

Finnvera

 JP Morgan and Bank of America 121,263 121,263 100% LIBOR 6M + 0.75% p.a. 79.00–92.59% CDI
BRL IPCA x DI BNB XP and ITAU 230,818 232,930 100% IPCA + 1.22–1.49% p.a. 67.73–69.50% CDI
USD PRE x DI The Bank of Nova Scotia Scotiabank 1,448,770 1,449,809 100% 1.73–3.80% p.a. CDI + 1.05–108.95% CDI
BRL PRE x DI BNP Paribas BNP Paribas 514,871 517,495 100% 8.34% p.a. CDI + 1.07%
BRL IPCA x DI DEBENTURE ITAU 1,861,375 1,863,514 100% IPCA + 4.17% p.a. CDI + 0.95%
BRL IPCA x DI BNDES XP 393,791 394,966 100% IPCA + 4.23% p.a. 96.95% CDI
                 

 

1 In certain swap contracts, long position includes the cost of income tax (15%) and few debt contracts linked to IPCA were remeasured due to the deflation. After related taxes, coverage remains at 100%.

 

 

December 31, 2022

 

                  COUNTERPARTY                      % Coverage                       AVERAGE SWAP RATES                   
Currency SWAP type

 

Debt

 SWAP Total Debt Total swap
(Long position)¹		   Long position Short position
USD LIBOR x DI

KFW/

Finnvera

 JP Morgan and Bank of America 175,589 175,589 100% LIBOR 6M + 0.75% p.a. 79.00–92.59% CDI
BRL IPCA x DI BNB XP and ITAU 249,400 249,166 100% IPCA + 1.22–1.49% p.a. 67.73–69.50% CDI
USD PRE x DI The Bank of Nova Scotia Scotiabank 1,568,683 1,569,829 100% 1.73–3.80% p.a. CDI + 1.05–108.95% CDI
BRL PRE x DI BNP Paribas BNP Paribas 515,265 517,727 100% 8.34% p.a. CDI + 1.07%
BRL IPCA x DI DEBENTURE ITAU 1,796,843 1,796,843 100% IPCA + 4.17% p.a. CDI + 0.95%
BRL IPCA x DI BNDES XP 394,139 394,139 100% IPCA + 4.23% p.a. 96.95% CDI
                 

 

 

1 In certain swap contracts, long position includes the cost of income tax (15%). After related taxes, coverage remains at 100%.

 

 

120 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

Position showing the sensitivity analysis – effect of variations in the fair value of the swaps

 

For the purpose of identifying possible distortions arising from operations with consolidated derivative financial instruments currently in force, a sensitivity analysis was performed considering the variables CDI, US dollar (USD), Libor and IPCA, individually, in three distinct scenarios (probable, possible and remote), and their respective impacts on the results obtained.

 

Our assumptions basically observed the individual effect of the CDI, USD, Libor and IPCA variation used in the transactions as the case may be, and for each scenario the following percentages and quotes were used:

 

Sensitivity scenario Fair value in USD, EUR, BRL and IPCA(1) A) ∆ Accumulated variation in debt Fair value of the long position of the swap (+) Fair value of the short position of the swap (-) Swap result B) ∆ Accumulated variation in swap C) Final Result (B-A)
                 
  June 2023     3,974,977                -        3,974,977 (4,045,002) (70,026)                -                   -   
                 
CDI probable     3,974,977                -        3,974,977 (4,045,002) (70,026)                -                   -   
possible     3,974,577 (400)     3,974,577 (4,065,671)  (91,094) (21,068) (20,668)
remote     3,974,189 (787)     3,974,189 (4,086,046) (111,857) (41,831) (41,044)
USD probable     3,974,977                -        3,974,977 (4,045,002) (70,026)                -                   -   
possible     4,359,874      384,897     4,359,874 (4,045,002)       314,871      384,897                -   
remote      4,744,771       769,794      4,744,771 (4,045,002)      699,768       769,794                -   
Libor probable     3,974,977                -        3,974,977 (4,045,002) (70,026)                -                   -   
possible     3,976,842          1,865     3,976,842 (4,045,002) (68,160)          1,865                -   
remote     3,978,707           3,731     3,978,707 (4,045,002) (66,295)           3,731                -   
IPCA probable     3,974,977                -        3,974,977 (4,045,002)  (70,026)                -                   -   
possible     3,881,858 (93,119)     3,881,858 (4,045,002) (163,145) (93,119)                -   
remote     3,793,848 (181,129)     3,793,848 (4,045,002) (251,155) (181,129)                -   

 

(1) (KFW Finnvera, Scotia, BNB, BNP Paribas, Debenture and BNDES.

 

 

Risk variable Sensitivity scenario CDI USD Libor IPCA
           
           
CDI Probable 13.65% 4.8192 5.73% 3.16%
Possible 17.06% 4.8192 5.73% 3.16%
Remote 20.48% 4.8192 5.73% 3.16%
USD Probable 13.65% 4.8192 5.73% 3.16%
Possible 13.65% 6.0240 5.73% 3.16%
Remote 13.65% 7.2288 5.73% 3.16%
Libor Probable 13.65% 4.8192 5.73% 3.16%
Possible 13.65% 4.8192 7.16% 3.16%
Remote 13.65% 4.8192 8.60% 3.16%
IPCA Probable 13.65% 4.8192 5.73% 3.16%
Possible 13.65% 4.8192 5.73% 3.95%
Remote 13.65% 4.8192 5.73% 4.74%

 

 

121 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

As the Company has derivative financial instruments for the purposes of protection of its respective financial liabilities, the changes in the scenarios are accompanied by the respective object of protection, thus showing that the effects related to the exposure generated in the swaps will have their counterpart reflected in the debt. For these transactions, the Company discloses the fair value of the object (debt) and the protective derivative financial instrument on separate lines, as demonstrated above in the sensitivity analysis demonstration table, in order to report the company's net exposure in each of the scenarios mentioned.

 

It is noteworthy that the operations with derivative financial instruments contracted by the company have as sole objective the patrimonial protection. In this way, an improvement or worsening in their respective market values will be equivalent to an inverse movement in the corresponding portions of the value of the financial debt contracted, object of the derivative financial instruments of the company.

 

The sensitivity analyses for derivative financial instruments in force on June 30, 2023 were carried out considering, basically, the assumptions related to changes in market interest rates and the change in the US dollar used in swap contracts. The use of these assumptions in the analysis is due exclusively to the characteristics of derivative financial instruments, which have exposure only to changes in interest and exchange rates.

 

Table with gains and losses on derivatives in the period

 

    June 2023   June 2022
Net income (loss) from derivative operations   (123,512)   (128,390)
Income (loss) from operations with other derivatives   19,587   92,639

 

 

Capital Management

 

The Group's objectives in managing its capital are to safeguard its business continuity capacity to offer return to shareholders and benefits to the other stakeholders besides maintaining a capital structure to reduce this cost. To maintain or adjust the group's capital structure, management may review the dividend payment policy, return capital to shareholders, or issue new shares or sell assets to reduce, for example, the level of debt.

 

 

Changes in financial liabilities

 

Changes in liabilities arising from financing activities such as loans and financing, lease liabilities lease and financial instruments are presented below:

 

Parent Company

  Loans and financing   Lease liabilities   Derivative financial instruments (Assets) Liabilities
           
December 31, 2022 4,969,825   9,948,873   (508,251)
   Inflows -   1,190,002   142,588
   Balance of merged company -   2,992,831   -
  Cancellations -   (239,937)   -
  Financial expenses 192,697   643,846   (8,893)
   Foreign exchange variations, net (132,405)   -   132,405
   Payments (240,542)   (1,434,066)   (169,521)
           
June 30, 2023 4,789,575   13,101,549   (411,672)

 

 

122 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

Parent Company

  Loans and financing   Lease liabilities   Derivative financial instruments (Assets) Liabilities
           
December 31, 2021 3,845,465   9,063,539   (447,132)
   Inflows 1,249,128   1,491,500   (99,701)
  Cancellations -   (40,894)   -
  Financial expenses 197,236    526,080   115,394
   Foreign exchange variations, net (13,096)    -      12,996
   Payments (558,301)   (1,131,589)   (76,438)
  -       -
June 30, 2022 4,720,432   9,908,636   (494,881)

 

 

Consolidated

  Loans and financing   Lease liabilities   Derivative financial instruments (Assets) Liabilities
           
December 31, 2021 3,845,465   9,063,539   (447,132)
   Inflows 1,249,128   1,491,500   (99,701)
   Cozani acquisition – opening balance 04/30/2022 -   2,929,449   -
  Cancellations -   (40,895)   -
  Financial expenses 197,236    592,905   115,394
   Foreign exchange variations, net (13,096)    -      12,996
   Payments (558,301)   (1,263,225)   (76,438)
           
June 30, 2022 4,720,432   12,773,273   (494,881)
38.Defined benefit pension plans and other post-employment benefits

 

    June 2023   December 2022
         
PAMEC/asset policy and medical plan   5,825   5,825

 

 

ICATU, SISTEL and VIVEST

 

The Company sponsors defined benefit private pension and contribution plans for a group of employees from the former TELEBRÁS system, which are currently under the administration of ICATU FUNDO MULTIPATROCINADO and Fundação Sistel de Seguridade Social. In addition to the plans coming from the TELEBRÁS system, there is also the plan administered by the VIVEST foundation resulting from the incorporation of AES Atimus.

 

 Such supplementary pension plans, as well as medical plans, are briefly explained below:

 

 

PBS assisted (PBS-Tele Celular Sul and PBS-Tele Nordeste Celular): SISTEL benefit plan with a defined benefit feature. It includes retired employees who were part of the plans sponsored by the companies of the old TELEBRÁS system;

 

PBS (PBS Tele Celular Sul and PBS Tele Nordeste Celular): pension plan for active and assisted employees with defined benefit characteristics. These benefit plans are managed by the ICATU Fundo MULTIPATROCINADO;

 

123 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

TIMPREV Plan (South and Northeast): pension plan for active and assisted employees with defined contribution characteristics. These benefit plans are managed by the ICATU Fundo MULTIPATROCINADO;

 

Administration agreement: administration agreement for retirement payment to retirees and pensioners of the company's predecessors. Said plan is managed by ICATU Fundo MULTIPATROCINADO;

 

PAMEC/Asset Policy: complementary health care plan for retirees of the Company's predecessors;

 

AES Telecom: Complementary pension plan managed by Vivest, which is the responsibility of TIM, due to the acquisition of AES Atimus, a company that belonged to the former Eletropaulo. Currently, the plan is in the process of Withdrawal of Sponsorship with the National Superintendence of Complementary Pensions (PREVIC).

 

Fiber medical plan: Provision for maintenance of health plan as post-employment benefit to former employees of AES Atimus (as established in Law 9656/98, articles 30 and 31), which was acquired and incorporated by TIM.

39.Insurances

 

The Company maintains a policy of monitoring the risks inherent in its operations. As a result, as of June 30, 2023, the company had insurance contracts in force to cover operational risks, civil liability, cyber risks, health, among others. The management of the company understands that the policies represent sufficient amounts to cover any losses. The main assets, liabilities or interests covered by insurance and their maximum indemnity limits are as follows:

 

 

 

Modalities   Maximum indemnity limits
Operational risks   R$ 590,376
General Civil Liability - RCG   R$ 80,000
Cyber risks   R$ 30,000
Automobile (executive and operational fleet)   R$ 1,000 for optional civil liability (property damage and bodily harm) and R$ 100 for pain and suffering.

 

 

40. Supplementary information to the cash flow

 

                    Parent Company   Consolidated
  June 2023   June 2022   June 2023   June 2022
               

Non-cash transactions

              
               
               
Additions to property, plant and equipment and intangible assets - with no effect on cash (1,090,002)   (1,413,015))   (1,490,295)   (1,449,134)
Increase in lease liabilities - no effect on cash    1,090,002   1,413,015   1,490,295   1,449,134
Assets and liabilities, net of merger effects 3,877,394   -   -   -
C6 Bank bonus warrant 162,958   -   162,958   -
               

 

124 

TIM S.A.

 

NOTES TO THE QUARTERLY INFORMATION

June 30, 2023

(In thousands of Reais, except as otherwise stated)

 

 

41.Subsequent events

 

Distribution of interest on shareholders’ equity

 

The Company’s Board of Directors approved the distribution of
R$ 290,000 of interest on shareholders’ equity as of June 12, 2023. The payment took place on July 12, 2023, and the date for identification of shareholders entitled to receive such amounts took place on June 22, 2023.

 

 

 

 

 

 

 

125 

 

FISCAL COUNCIL’S OPINION

 

The Members of the Fiscal Council of TIM S.A. ("Company"), in the exercise of their attributions and legal duties, as provided in Article 163 of the Brazilian Corporate Law, conducted a review and analysis of the quarterly financial statements, along with the limited review report of Ernst & Young Auditores Independentes S/S (“EY”), for the period that ended on June 30th, 2023, and taking into account the information provided by the Company's management and the Independent Auditors, consider the information appropriate for presentation to the Board of Directors of the Company, in accordance to the Brazilian Corporate Law.

 

 

Rio de Janeiro, July 31st, 2023.

 

 

 

WALMIR URBANO KESSELI

Chairman of the Fiscal Council

ANNA MARIA CERENTINI GOUVÊA GUIMARÃES

Member of the Fiscal Council

 

 

 

Elias de Matos Brito

Member of the Fiscal Council

 

 

 

 

126 

 

STATUTORY OFFICERS’ STATEMENT

 

Alberto Mario Griselli (Chief Executive Officer and Investor Relations Officer), Andrea Palma Viegas Marques (Chief Financial Officer), Bruno Mutzenbecher Gentil (Business Support Officer), Maria Antonietta Russo (People, Culture & Organization Officer), Mario Girasole (Regulatory and Institutional Affairs Officer) and Fabiane Reschke (Legal Officer), as Statutory Officers of TIM S.A., declare, in accordance with article 27, paragraph 1, item VI of CVM Resolution Nr. 80 of March 29th, 2022, that they have reviewed, discussed and agreed with the Company’s Financial Statements for the period ended June 30th, 2023.

 

Rio de Janeiro, July 31st, 2023.

 

 

ALBERTO MARIO GRISELLI

Diretor Presidente e Diretor de Relações com Investidores (Chief Executive Officer and Investor Relations Officer)

ANDREA PALMA VIEGAS MARQUES

Diretora Financeira (Chief Financial Officer)

 

 

MARIO GIRASOLE

Regulatory and Institutional Affairs Officer

 

 

BRUNO MUTZENBECHER GENTIL

Business Support Officer

 

 

FABIANE RESCHKE

Diretora Jurídica (Legal Officer)

 

 

 

 

 

MARIA ANTONIETTA RUSSO

People, Culture & Organization Officer

 

 

 

 

 

 

 

 

 

 

 

127 

 

STATUTORY OFFICERS’ STATEMENT

 

 

Alberto Mario Griselli (Chief Executive Officer and Investor Relations Officer), Andrea Palma Viegas Marques (Chief Financial Officer), Bruno Mutzenbecher Gentil (Business Support Officer), Maria Antonietta Russo (People, Culture & Organization Officer), Mario Girasole (Regulatory and Institutional Affairs Officer) and Fabiane Reschke (Legal Officer), as Statutory Officers of TIM S.A., declare, in accordance with Section 27, paragraph 1, item V of CVM Resolution Nr. 80 of March 29th, 2022, that they have reviewed, discussed and agreed with the opinion expressed on the Company’s Independent Auditors’ Report regarding the Company’s Financial Statements for the period ended June 30th, 2023.

 

Rio de Janeiro, July 31st, 2023.

 

 

ALBERTO MARIO GRISELLI

Diretor Presidente e Diretor de Relações com Investidores (Chief Executive Officer and Investor Relations Officer)

ANDREA PALMA VIEGAS MARQUES

Diretora Financeira (Chief Financial Officer)

 

 

MARIO GIRASOLE

Regulatory and Institutional Affairs Officer

 

 

BRUNO MUTZENBECHER GENTIL

Business Support Officer

 

 

FABIANE RESCHKE

Diretora Jurídica (Legal Officer)

 

 

MARIA ANTONIETTA RUSSO

People, Culture & Organization Officer

 

 

 

 

  
   

 

 

 

 

128 

 
 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    TIM S.A.
Date: July 31, 2023   By: /s/ Alberto Mario Griselli
      Alberto Mario Griselli
      Chief Executive Officer, Chief Financial Officer and Investor Relations Officer

  

 

 

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