Amended Annual and Transition Report (foreign Private Issuer) (20-f/a)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F/A

(Amendment No. 1)

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report

Commission file number: 001-14491

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

TIM HOLDING COMPANY

(Translation of Registrant’s name into English)

THE FEDERATIVE REPUBLIC OF BRAZIL

(Jurisdiction of incorporation or organization)

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

Adrian Calaza
Chief Financial Officer and Investor Relations Officer
TIM Participações S.A.
João Cabral de Melo Neto Avenue, 850 – North Tower – 12^th floor
22775-057 Rio de Janeiro, RJ, Brazil
Tel: 55 21 4109-4167
ri@timbrasil.com.br

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares, without par value*	New York Stock Exchange
American Depositary Shares, as evidenced by American Depositary Receipts, each representing five Common Shares	New York Stock Exchange

* Not for trading, but only in connection with the listing of American Depositary Shares on the New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Title of Class	Number of Shares Outstanding
Common Shares, without par value	2,421,032,479

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒ No ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐ No ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ ☐ Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

☐ U.S. GAAP

☒ International Financial Reporting Standards as issued by the International Accounting Standards Board

☐ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

EXPLANATORY NOTE

This Amendment No. 1 on Form 20-F/A (the “Amendment”) is being filed by TIM Participações S.A. (“TIM” the “Company,” “we,” “our,” or “us”) to amend the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019, originally filed with the U.S. Securities Exchange Commission on April 30, 2020 (the “Original Filing”). The Company is filing this Amendment solely to replace our consolidated financial statements included in the Original Filing in order to include (i) the Ernst & Young Auditores Independentes S.S. reports of independent registered public accounting firm as pages F-4 to F-7, and (ii) the PricewaterhouseCoopers Auditores Independentes report of independent registered public accounting firm as pages F-8 to F-9, which were not included in the Original Filing.

This Amendment consists solely of the cover page and this explanatory note. Except as described above, this Amendment does not amend any information set forth in the Original Filing or reflect any events that occurred subsequent to the filing of the Original Filing on April 30, 2020. Accordingly, this Amendment should be read in conjunction with the Original Filing and with our filings with the U.S. Securities Exchange Commission subsequent to the Original Filing.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing Form 20-F/A and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 to annual report on its behalf.

Dated: May 1, 2020

TIM PARTICIPAÇÕES S.A.
By:	/s/ Pietro Labriola
	Name:	Pietro Labriola
	Title:	Chief Executive Officer

By:	/s/ Adrian Calaza
	Name:	Adrian Calaza
	Title:	Chief Financial Officer and Investor Relations Officer

TIM Participações S.A. and

Subsidiary

Consolidated Financial Statements as at

December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 and

Reports of Independent Registered Public Accounting Firm

TIM PARTICIPAÇÕES S.A.

CONSOLIDATED FINANCIAL STATEMENTS

As at December 31, 2019 and 2018 and for each of the

three years in the period ended December 31, 2019

Contents

Report of Independent Registered Public Accounting Firm, EY	F-4
Report of Independent Registered Public Accounting Firm, PWC	F-8
Audited financial statements
Balance sheets	F-9
Income statements	F-11
Statements of comprehensive income	F-12
Statements of changes in shareholders’ equity	F-13
Cash flow statements	F-16
Notes to the financial statements	F-18

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of TIM Participações S.A.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of TIM Participações S.A. and subsidiary (the “Company”) as of December 31, 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 30, 2020 expressed an unqualified opinion thereon.

Adoption of IFRS 16, Leases

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2019, the Company changed its method of accounting for leases as a result of the adoption of IFRS 16, Leases.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-4

Provision for tax contingencies

Description of the Matter

As discussed in Note 23 of the consolidated financial statements, the Company is party to numerous tax contingencies claims and proceedings at different jurisdictional levels, which amount to R$16,530 million, for which a provision for contingencies amounting to R$334 million was recorded in the consolidated financial statements, while R$16,196 million was disclosed by the Company as losses possible to occur. The determination of the provision value and the amounts disclosed involve significant Management judgments, based on their analysis of the matters, the opinion of internal and external legal counsel and the estimation of their ultimate resolution.

Auditing management’s assessment of the probability of a loss on tax claims is complex, judgmental and based on interpretations of tax laws and legal rulings, as there is significant estimation uncertainty related to the ultimate outcome of court decisions, the evolution of jurisprudence and the position of the tax authorities.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the identification and evaluation of tax claims, including management’s process to determine whether the technical merits are more-likely-than-not to be sustained in court and over the generation of relevant reports produced by information technology systems that support this process.

To test the Company’s assessment of the probability of a loss on tax claims, our audit procedures included, among others, involving our tax professionals to assess the Company’s technical merits; evaluating legal opinions or other third-party advice obtained by the Company; independently corresponding with certain key external tax and legal advisers of the Company; obtaining analyzed these independent second opinions from other legal and tax advisors for certain key matters; evaluating the Company’s assessment using our knowledge of, and experience with, the application of tax laws by the relevant tax authorities. We assessed the adequacy of the disclosures made by the Company in respect of provision for tax contingencies.

PIS and COFINS tax recoverable

Description of the Matter

As described in Note 9 to the consolidated financial statements, in 2019 the Company recognized a tax receivable for R$3.023 million as a result of a favorable outcome of the court proceedings initiated in prior years, without possibility of appeal. The favorable court judgments recognized the right to exclude the state tax on goods and services (ICMS) from the calculation base for the Company’s contributions to the PIS (Programa de Integração Social) and to COFINS (Contribuição para Financiamento da Seguridade Social) for the periods covered in the litigation processes. The Company has received the authorization from the competent authority in Brazil to start realizing those credits by offsetting current federal tax obligations.

Auditing management’s assessment of the amount of the tax credit is complex and judgmental as the credit amount and the basis for its calculation are not explicit in the court ruling. The estimation of the timing and amount of utilization of the tax credit involved estimating the Company´s future revenues, among other assumptions. Those assumptions could be affected by future market and economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the identification and classification of tax credits, including controls over the estimation of the timing of utilization, the calculation of future federal taxes payable and related management assumptions.

To test the Company’s PIS and COFINS tax credits our audit procedures included, among others, involving our tax professionals to assess the Company’s assumptions regarding the proper methodology applied to measure the amount of the tax credits; independently corresponding with certain key external tax and legal advisers of the Company; testing the underlying data used by management in performing their calculations; evaluating the Company’s assessment using our knowledge of, and experience with, the application of tax laws by the relevant tax authorities. We assessed the adequacy of the disclosures made by the Company in respect of this topic.

F-5

Leases Recognition Accounting Standard Adoption (IFRS 16)

Description of the Matter

As mentioned above and more fully described in Notes 2 and 14 to the consolidated financial statements, the Company adopted IFRS 16, “Leases” using the full retrospective approach. The first-time adoption of this standard resulted in the recognition of a right of use (ROU) assets and correspondent lease liability of R$5,256 million as of January 1, 2019. The Company has a significant volume of operational lease contracts due to various network infrastructure sharing agreements amongst various telecom operators in the market, with payments recorded on a straight-line basis over the contract terms. Certain aspects of adopting IFRS 16 required management to exercise significant judgment, such as the determination of the incremental borrowing rate (IBR) and the classification of individual leases based on their contractual terms.

Auditing management’s initial adoption of the standard was complex due to the significant judgment by management in applying the lease standard to a large volume of contracts in the Company’s lease portfolio. Furthermore, the determination of the IBR was complex and judgmental due to the assumptions involved, such as the credit rating of its borrowings, the observable debt yields used to constructing the yield curve and adjustments to borrowings terms to match the lease terms. These assumptions might be affected by future market or economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the application of accounting policy elections to its portfolio of leases and over management’s computation of the IBR, including testing of the controls implemented by the Company to review the reasonableness of the key assumptions for the determination of the IBR and controls over the completeness and accuracy of management’s identification of the leases in the Company’s contract portfolio.

To test the Company’s implementation of IFRS 16 our audit procedures included, among others, testing the completeness of the population of contracts that meet the definition of a lease under IFRS 16; testing the lease classification made by management against the contractual terms; testing the accuracy of the Company’s calculations of right of use assets and lease liabilities; evaluating management’s methodology for developing the IBR and benchmarking significant underlying assumptions with industry and market data. We assessed the adequacy of the disclosures made by the Company in this area.

/s/ Ernst & Young Auditores Independentes S.S.

We have served as the Company´s auditor since 2019.

Rio de Janeiro, Brazil

April 30, 2020

F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of TIM Participações S.A.

Opinion on Internal Control over Financial Reporting

We have audited TIM Participações S.A. and subsidiary’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, TIM Participações S.A. and subsidiary (the “Company”) maintained, in all material respects effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended, and the related notes and our report dated April 30, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company´s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company´s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young Auditores Independentes S.S.

Rio de Janeiro, Brazil

April 30, 2020

F-7

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

TIM Participações S.A.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of TIM Participações S.A. and its subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers Auditores Independentes

Rio de Janeiro, RJ, Brazil

April 10, 2019

We served as the Company's auditor from 2010 to 2019.

F-8


TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2019 and December 31, 2018
(In thousands of Reais)


	Notes	2019	2018

Asset		40,348,924	31,957,889

Current Assets		8,454,129	5,998,126
Cash and cash equivalents	4	2,284,810	1,075,530
Marketable securities	5	654,479	784,841
Trade accounts receivable	6	3,184,780	2,838,808
Inventory	7	203,278	183,059
Indirect taxes, charges and contributions recoverable	8	420,284	280,254
Direct taxes, charges and contributions recoverable	9	1,395,193	347,505
Prepaid expenses	11	175,868	272,060
Derivative Financial Instruments	36	16,602	50,769
Financial leases	15	4,931	22,491
Regulatory credits recoverable	16	33,090	41,612
Other current assets		80,814	101,197

Non-current assets		31,894,795	25,959,763
Long-term receivables		4,614,305	4,074,137
Marketable securities	5	3,849	5,229
Trade accounts receivable	6	103,075	130,308
Indirect taxes, charges and contributions recoverable	8	823,349	912,511
Direct taxes, charges and contributions recoverable	9	2,367,607	558,016
Deferred income tax and social contribution	10	‐	801,971
Judicial Deposit	12	1,006,899	1,345,113
Prepaid expenses	11	69,656	74,381
Derivative Financial Instruments	36	29,909	30,639
Financial leases	15	151,447	185,558
Other current assets		58,514	30,411

Property, plant and equipment	13	17,612,164	11,203,622
Intangible	14	9,668,326	10,682,004

The accompanying notes are an integral part of the financial statements.

F-9

TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Years ended December 31
(In thousands of Reais)

	Notes	2019	2018

Total liabilities and shareholders’ equity		40,348,924	31,957,889

Total Liability		17,917,106	12,163,052

Current Liabilities		8,117,479	7,075,379
Suppliers	17	3,923,035	4,323,374
Loans and financings	19	1,384,180	698,728
Financial leases	15	873,068	205,048
Derivative Financial Instruments	36	858	2,373
Payroll and related charges		218,421	211,685
Indirect taxes, charges and contributions payable	20	463,606	451,169
Direct taxes, charges and contributions payable	21	296,305	332,333
Dividends and interest on shareholders’ equity payable	24	577,837	370,105
Authorizations payable	18	88,614	65,464
Deferred revenues	22	281,930	406,867
Other current liabilities		9,625	8,233

Non-current Liabilities		9,799,627	5,087,673
Loans and financings	19	644,908	964,289
Derivative Financial Instruments	36	3,547	9,245
Financial leases	15	6,907,802	1,735,026
Indirect taxes, charges and contributions payable	20	2,997	2,772
Direct taxes, charges and contributions payable	21	212,310	209,880
Deferred income tax and social contribution	10	47,734	‐
Provision for legal and administrative proceedings	23	840,637	849,408
Pension plan and other post-employment benefits	37	5,782	2,850
Authorizations payable	18	237,723	348,336
Deferred revenues	22	827,182	906,600
Other current liabilities		69,005	59,267

Shareholders’ equity	24	22,431,818	19,794,837
Capital Stock		9,866,298	9,866,298
Capital reserves		410,650	412,091
Profit reserves		12,159,162	9,524,124
Accumulated other comprehensive income		(1,088)	847
Treasury shares		(3,204)	(8,523)

The accompanying notes are an integral part of the financial statements.

F-10

TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31
(In thousands of **Reais, except as otherwise stated)**


	Notes	2019	2018	2017

Revenue	26	17,377,194	16,981,329	16,233,959

Costs of services provided and goods sold	27	(7,433,731)	(7,701,418)	(8,002,077)
Gross income		9,943,463	9,279,911	8,231,882

Operating income (expenses)
Selling expenses	27	(4,986,289)	(4,970,780)	(4,575,177)
General and administrative expenses	27	(1,717,859)	(1,608,319)	(1,424,643)
Other income (expenses), net	28	1,275,542	(283,289)	(298,710)
		(5,428,606)	(6,862,388)	(6,298,530)

Operating income		4,514,857	2,417,523	1,933,352

Financial income (expenses)
Financial income	29	1,430,171	412,733	512,565
Financial expenses	30	(1,408,053)	(951,439)	(1,009,653)
Foreign exchange variations, net	31	(908)	1,373	(748)
		21,210	(537,333)	(497,836)

Income before income and social contribution taxes		4,536,067	1,880,190	1,435,516

Income and social contribution taxes	32	(913,940)	664,911	(201,009)

Net income for the year		3,622,127	2,545,101	1,234,507

Earnings per share attributed to the Company’s shareholders (in R$ per share)

Basic earnings per share	33	1.50	1.05	0.51

Diluted earnings per share	33	1.50	1.05	0.51

The accompanying notes are an integral part of the financial statements.

F-11

TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
COMPREHENSIVE INCOME STATEMENT
Periods ended December 31, 2019 and 2018
(In thousands of Reais)
	2019	2018	2017

Net income for the year	3,622,127	2,545,101	1,234,507

Other components of comprehensive income
Item not to be reclassified to income:
Pension plan and other post-employment benefits	(2,932)	(215)	(1,052)
Deferred taxes	997	73	358
Item to be subsequently reclassified to income:
Cash flow hedge	-	-	3,318
Deferred taxes	-	-	(1,128)
Total comprehensive income for the year	3,620,192	2,544,959	1,236,003

The accompanying notes are an integral part of the financial statements.

F-12

TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Fiscal years ended December 31
(In thousands of Reais)
			Profit reserves
	Capital Stock	Capital reserves	Legal reserve	Reserve for expansion	Tax benefit reserve	Treasury shares	Accumulated other comprehensive income	Retained earnings	Total
Balances as at December 31, 2018	9,866,298	412,091	838,692	7,267,574	1,417,858	(8,523)	847	‐	19,794,837

Total comprehensive income for the year
Net income for the year								3,622,127	3,622,127
Remeasurement of post-employment benefit obligation	-	-	-	-	‐	-	(1,935)	-	(1,935)
Total comprehensive income for the year	‐	‐	‐	‐	‐	‐	(1,935)	3,622,127	3,620,192
Total contributions from shareholders and distributions to shareholders
Stock options (Note 24.b)	-	(1,441)	-	-		‐	-	-	(1,441)
Purchases of treasury shares, net of disposals	-	-	-	-		5,319	-	-	5,319
Allocation of net profit for the year:
Legal Reserve (note 24)	-	-	171,398	-		-	-	(171,398)	‐
Interest on equity (note 24)	-	-	-	-		-		(995,438)	(995,438)
Constitution of tax benefit reserve (note 24)	-	-		‐	194,161	-	-	(194,161)	‐
Constitution of reserve for expansion (note 24)	-	-	-	2,261,130		-	-	(2,261,130)	‐
Unclaimed dividends (note 24)	-	-	-	8,349		-	-	‐	8,349
Total contributions from shareholders and distributions to shareholders	‐	(1,441)	171,398	2,269,479	194,161	5,319	‐	(3,622,127)	(983,211)
Balances as at December 31, 2019	9,866,298	410,650	1,010,090	9,537,053	1,612,019	(3,204)	(1,088)	‐	22,431,818

F-13

TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Fiscal years ended December 31
(In thousands of Reais)
			Profit reserves
	Capital Stock	Capital reserves	Legal reserve	Reserve for expansion	Tax benefit reserve	Treasury shares	Accumulated other comprehensive income	Retained earnings	Total
Balances as at December 31, 2017	9,866,298	416,162	718,759	5,894,060	1,271,403	(16,487)	989	‐	18,151,184
Impact of initial adoption of new accounting pronouncements (note 2.f)	‐	‐	‐	(62,119)	‐	‐	‐	‐	(62,119)
Balances as at December 31, 2017, adjusted	9,866,298	416,162	718,759	5,831,941	1,271,403	(16,487)	989	‐	18,089,065

Total comprehensive income for the year
Net income for the year								2,545,101	2,545,101
Remeasurement of post-employment benefit obligation	-	-	-	-	‐	-	(142)	-	(142)
Total comprehensive income for the year	‐	‐	‐	‐	‐	‐	(142)	2,545,101	2,544,959
Total contributions from shareholders and distributions to shareholders
Stock options (Note 24.b)	-	(4,071)	-	-		‐	-	-	(4,071)
Purchases of treasury shares, net of disposals	-	-	-	-		7,964	-	-	7,964
Allocation of net profit for the year:
Legal Reserve (note 24)	-	-	119,933	-		-	-	(119,933)	‐
Interest on equity (note 24)	-	-	-	-		-		(849,994)	(849,994)
Constitution of tax benefit reserve (note 24)	-	-			146,455	-	-	(146,455)	‐
Constitution of reserve for expansion (note 24)	-	-	-	1,428,719		-	-	(1,428,719)	‐
Unclaimed dividends (note 24)	-	-	-	6,914		-	-	‐	6,914
									‐
Total contributions from shareholders and distributions to shareholders	‐	(4,071)	119,933	1,435,633	146,455	7,964	‐	(2,545,101)	(839,187)
Balances as at December 31, 2018	9,866,298	412,091	838,692	7,267,574	1,417,858	(8,523)	847	‐	19,794,837

The accompanying notes are an integral part of the financial statements.

F-14

TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Fiscal years ended December 31
(In thousands of Reais)
				Profit reserves
		Share capital	Capital reserve	Legal reserve	Reserve for expansion	Tax benefit reserve	Treasury shares	Accumulated other comprehensive income	Retained earnings	Total

Balances as at December 31, 2016	9,866,298		405,239	657,034	5,103,908	1,158,910	(3,369)	(507)	-	17,187,513

Total comprehensive income for the year
Net income for the year									1,234,507	1.234.507
Remeasurement of post-employment benefit obligation		-	-	-	-		-	(694)	-	(694)
Cash flow hedge		-	-	-	-		-	2,190	-	2.190
Total comprehensive income for the year		-	-	-	-		-	1,496	1,234,507	1.236.003

Total contributions from shareholders and distributions to shareholders
Stock options (Note 24.b)		-	10,923	-	-		-	-	-	10.923
Purchases of treasury shares, net of disposals		-	-	-	-		(13,118)	-	-	(13.118)
Allocation of net income for the year:
Legal reserve (Note 24)		-	-	61,725	-		-	-	(61,725)	-
Dividends declared (Note 24)		-	-	-	-		-		(103,325)	(103.325)
Interest on shareholders’ equity (Note 24)		-	-	-	-		-		(189,991)	(189.991)
Reserve for tax benefit (Note 24)		-				112,493	-	-	(112,493)	-
Reserve for expansion (Note 24)		-	-	-	766,973		-	-	(766,973)	-
Dividends recorded directly in shareholder’s equity		-	-	-	23,179		-	-	-	23.179
										-
Total contributions from shareholders and distributions to shareholders		-	10,923	61,725	790,152	112,493	(13,118)	-	(1,234,507)	(272.332)
Balances as at December 31, 2017	9,866,298		416,162	718,759	5,894,060	1,271,403	(16,487)	989	-	18,151,184

The accompanying notes are an integral part of the financial statements.

F-15

TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Fiscal years ended December 31
(In thousands of Reais)

	Notes	2019	2018	2017
Operating activities
Income before income and social contribution taxes		4,536,067	1,880,190	1,435,516
Adjustments to reconcile income with net cash from operations
Depreciation and amortization		5,128,981	3,954,321	4,013,671
(Gain) loss on the sale of property, plant and equipment (leaseback)		‐	-	1,801
Residual value of property, plant and equipment and intangible assets written off		32,411	9,700	54,104
Interest from obligations arising from asset retirement obligation		226	648	428
Provision for legal and administrative proceedings	23	547,691	551,191	372,469
Monetary adjustments to deposits, administrative and legal proceedings		200,469	297,529	97,805
Interest, monetary and exchange variations of borrowings and other financial adjustments		(950,675)	(35,450)	521,570
Lease interest payable	30	821,463	266,328	257,305
Lease interest receivable	29	(6,422)	(25,664)	(22,709)
Provision for doubtful debts	27	748,291	544,881	316,387
Stock options	25	3,443	(1,424)	10,923
		11,061,945	7,442,250	7,059,270
Decrease (increase) in operating assets
Trade accounts receivable		(1,027,131)	(1,028,791)	99,674
Taxes and contributions recoverable		(1,601,276)	175,116	162,705
Inventory		(20,219)	(59,274)	20,149
Prepaid expenses		100,917	56,792	(40,490)
Judicial Deposit		296,486	30,478	(53,217)
Other current assets		5,059	133,831	(26,129)
Increase (decrease) in operating liabilities
Payroll and related charges		6,736	(50,765)	50,171
Suppliers		(401,200)	331,736	523,419
Taxes, charges and contributions		40,045	187,170	(177,478)
Authorizations payable		(100,182)	(104,582)	(895,964)
Payments for legal and administrative proceedings	23	(715,203)	(536,646)	(439,670)
Deferred revenues		(204,355)	(193,599)	(415,651)
Other current liabilities		(215,063)	(40,373)	(165,598)
Cash generated by operations		7,226,559	6,343,343	5,701,191
Income tax and social contribution paid		(161,833)	(213,956)	(297,079)
Net Cash from Operations		7,064,726	6,129,387	5,404,112

Cash from Investment Activities
Marketable securities		131,742	(21,460)	(288,658)
Additions to property, plant and equipment and intangible assets		(3,853,484)	(3,831,906)	(4,147,907)
Cash received from property, plant and equipment sales		-	-	13,850
Receipt of financial leases		9,100	22,946	22,140

F-16

TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Fiscal years ended December 31
(In thousands of Reais)
	Notes	2019	2018	2017
Net cash used in investment activities		(3,712,642)	(3,830,420)	(4,400,575)
Cash from financing activities
New borrowing		1,000,000	166,548	646,853
Repayment of borrowing		(723,500)	(3,359,074)	(2,890,565)
Interest paid – borrowing and financings		(96,649)	(193,333)	(380,005)
Payment of financial lease		(800,621)	(9,898)	(14,340)
Interest paid - Leases		(785,091)	(242,512)	(204,849)
Derivative Financial Instruments		32,761	37,044	17,677
Purchases of treasury shares, net of disposals		435	5,317	(13,118)
Dividends and interest on shareholders’ equity paid		(770,139)	(588,247)	(332,658)
Net cash used in financing activities		(2,142,804)	(4,184,155)	(3,171,005)

Increase (decrease) in cash and cash equivalents		1,209,280	(1,885,188)	(2,167,468)

Cash and cash equivalents at the beginning of the year		1,075,530	2,960,718	5,128,186
Cash and cash equivalents at the end of the year		2,284,810	1,075,530	2,960,718


	2019	2018	2017

Non – cash transactions
Additions to property, plant and equipment and intangible assets, without cash effects	(6,653,985)	(38,944)	(48,957)
Increase in lease liabilities, without cash effects	6,653,985	38,944	48,957

The accompanying notes are an integral part of the financial statements.

F-17

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

1. Operations

1. a Corporate Structure

TIM Participações S.A. (“TIM Participações” and/or the “Company”) is a publicly-held corporation based in the city of Rio de Janeiro, State of Rio de Janeiro, and a subsidiary of TIM Brasil Serviços e Participações S.A. (“TIM Brasil”). TIM Brasil is a subsidiary of the Telecom Italia Group and held 66.58% of the capital of TIM Participações as at December 31, 2019 and 2018.

The main purpose of the Company and its subsidiary (the “Group”) is to control companies providing telecommunications services, including personal mobile telecom services and others, in their licensed areas. The services provided by TIM Participações’ subsidiary are regulated by the Agência Nacional de Telecomunicações (“ANATEL”).

The Company’s shares are traded on B3 (formerly BM&F/Bovespa). Additionally, TIM Participações trades its Level II American Depositary Receipts ("ADRs") on the New York Stock Exchange ("NYSE") – USA. Accordingly, the Company is subject to the rules of the Brazilian Securities Commission (Comissão de Valores Mobiliários or “CVM”) and the U.S. Securities and Exchange Commission (“SEC”). In accordance with market best practice, TIM Participações adopts the practice of simultaneously releasing its financial information in Reais in both markets, in Portuguese and English.

Corporate reorganization

On July 25, 2017, the meeting of the Board of Directors of the Company approved the corporate restructuring of the subsidiaries TIM Celular S.A. and Intelig Telecomunicações Ltda. (“Intelig”) through the takeover of TIM Celular by Intelig. On September 6, 2017, the corporate act transforming Intelig into a closely-held joint stock company was annotated, and its corporate name was changed to TIM S.A. On September 30, 2018, the Company’s Management had obtained from third parties all approvals and consents required to perform the said restructuring. As a result, the Company’s Management proceeded with the merger on October 31, 2018, based on the net book assets of TIM Celular, in the amount of R$17,035,254, in accordance with the valuation report issued by independent experts. Also, as a result of this corporate restructuring, the amount of R$952,368 relating to deferred income tax assets arising from tax losses and the negative base of TIM S.A. were recognized on September 30, 2018 (Note 10).

The changes in TIM Celular’s equity between the date of the report and the merger were transferred, absorbed and incorporated into the operating income of TIM S.A., as set forth in the protocol of the merger. As a result of the merger, all TIM Celular operations were transferred to TIM S.A., which succeeded it in all its assets, rights and liabilities, universally and for all purposes of the law.

Direct subsidiary – TIM S.A.

TIM S.A. (current name of INTELIG TELECOMUNICAÇÕES LTDA. and successor by merger of TIM CELULAR S.A.)

F-18

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The Company holds 100% of TIM S.A.’s capital. This subsidiary provides Landline Telephone Services (“STFC”) - Domestic Long-Distance and International Long-Distance Voice Services, Personal Mobile Service (“SMP”) and Multimedia Communication Services (“SCM”) in all Brazilian states and in the Federal District.

2. Basis for preparation and disclosure of the financial statements

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), and disclose all (and only) the applicable significant information related to the consolidated financial statements, which is consistent with the information utilized by management in the performance of its duties.

The significant accounting policies applied to the preparation of this financial statements are described below and/or presented in the respective notes. These policies were consistently applied to the years presented, unless otherwise indicated.

a. General preparation and disclosure criteria

The financial statements were prepared taking into account the historical cost as the base value as well as financial assets and liabilities (including derivative financial instruments) measured at fair value.

Assets and liabilities are reported 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 contingent liabilities that are fully classified as long-term.

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

b. Functional currency and presentation currency

The presentation currency for the financial statements is the Real (R$), which is also the functional currency for the company consolidated in these financial statements.

Transactions in foreign currency are recognized at the exchange rate on the date of the transaction. Monetary items in foreign currency are converted into Reais at the exchange rate on the date of the balance sheet published by the Central Bank of Brazil. Exchange gains and losses linked to these items are recorded in the statement of income.

c. Segment information

Operating segments are the components of the entity that develop business activities from which revenue can be obtained and in relation to which expenses are incurred. Their operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions on the allocation of resources and to assess the performance of each segment. For a segment to exist, it must have separate financial information available.

F-19

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The Company’s chief operating decision maker, responsible for allocating resources and for periodic performance evaluation, is the Executive Board. The Executive Board and the Board of Directors are jointly responsible for making strategic decisions and for managing the Group.

The Group’s strategy is to optimize the consolidated results of TIM Participações. This strategy includes optimizing the operations of each Group company, in addition to taking advantage of the synergies generated between them. Notwithstanding the various business activities, the decision makers see the Group as a single business segment and do not take into account specific strategies intended for a particular line of service. All decisions on strategic, financial, purchasing, investment and fund investment planning are made on a consolidated basis. The aim is to maximize the consolidated result obtained by exploring the SMP, STFC and SCM licenses.

d. Consolidation procedures

Subsidiaries are all entities over which the Group holds control. The Group controls an entity when it is liable or has rights to variable returns on the basis of its involvement with the subsidiaries and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The consolidation is discontinued from the date that the Group loses control over that entity.

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 acquired assets, equity instruments (e.g. shares) issued and liabilities incurred or assumed by the acquirer at the date when control is exchanged. Identifiable assets acquired, contingencies and liabilities assumed in a business combination are initially measured at their fair value as at the acquisition date, irrespective of the proportion of any minority interest. The excess of the acquisition cost over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of net assets of the subsidiary acquired, the difference is recognized directly in the statement of income as revenue, after a review of the concepts and calculations applied.

Transactions between Group companies, as well as balances, unrealized gains and losses related to these transactions, are eliminated. The accounting policies of the subsidiary were adjusted to ensure consistency with the accounting policies adopted by TIM Participações. The dates of the financial statements used in the consolidation are the same for all Group companies.

e. Approval of the financial statements

These financial statements were approved by the Company’s Board of Directors on April 17, 2020.

f. New standards, amendments and interpretations of standards

F-20

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

I) Among the new standards that became effective as of January 1, 2019 issued by the IASB, the following standards had a material impact on the Company’s consolidated financial statements:

IFRS 16 – “Leases”

In July 2014, the IASB issued IFRS 16, which replaced IAS 17 and refers to annual periods beginning on or after January 1, 2019 and approved by the CVM on December 21, 2017.

The new standard establishes the principles for the recognition, measurement, reporting and disclosure of leases, and requires the recognition by lessees of assets and liabilities arising from lease agreements, except for short-term contracts, that is, with a term of 12 months or less, or contracts in which the value of the underlying assets is low. In accordance with this standard, lessees must apply this pronouncement to lease agreements in two ways:

(i)	Retrospectively for each previous period presented in accordance with IAS 8 (Accounting Policies, Changes in Estimates and Correction of Errors); or
(ii)	Retrospectively, with the cumulative effect of the initial application of this pronouncement, recognized as an adjustment to the opening balance of retained earnings (or other component of the shareholders’ equity, as appropriate) as at the date of initial application.

The Company decided to adopt IFRS16 retrospectively, while the cumulative effect of the initial application is recognized on the date of initial application, that is, January 1, 2019. Additionally, the Company decided to take practical steps in its initial adoption of the standard, such as: (i) non-revaluation of financial lease agreements previously recognized according to IAS 17 upon initial measurement of financial lease liabilities, according to the new accounting pronouncement, and IFRIC 4; (ii) exclusion of lease agreements expiring in the next 12 months and unlikely to be renewed by the Company and the exclusion of leasing contracts considered of low value; (iii) non-application of this new standard to agreements not previously identified as leases, using IAS 17 and IFRIC 4; and (iv) application of a single discount rate to the leasing portfolio with reasonably similar characteristics (such as leasing with a similar remaining leasing period for a similar class of underlying assets in a similar economic setting).

The Company had a significant number of lease agreements under which it is the lessee. Currently, a portion of these contracts are recognized as operating leases, and their payments are recorded on a straight-line basis throughout the period of the contract. The Company concluded the study of impacts of this new standard on its financial statements, which included: (i) an estimation of the lease term, considering a non-cancelable period and the periods covered by options to extend the lease term, where such exercise depends only on the Company and is reasonably certain; (ii) a detailed review of the nature of the various lease agreements inherent in the telecommunications industry; (iii) use of assumptions to calculate the discount rate, which was based on the incremental interest rate for the period of the agreement, among other things. Furthermore, given the relevance of the infrastructure lease agreements, specifically for transmission towers, the Company decided to separately recognize the lease and non-lease components for this class of assets.

F-21

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The increase in lease liabilities due to the recognition of the right-of-use of the assets results in an increase in the Company's net debt, being the depreciation and interest charges recognized in the statement of income as a replacement of the operating lease expenses.

In qualitative terms, the main transactions to be impacted by the new standard include: lease of vehicles, lease of stores and kiosks in shopping malls, lease of sites, land and sharing of infrastructure.

The table below presents the principal effects of the adoption of IFRS16 in the opening balances as at January 1, 2019.


	Originally reported	Adjustments	Balances under IFRS 16
	Jan 1^st, 2019		Jan 1^st, 2019
Assets	31,957,889	5,256,114	37,214,003

Current assets	5,998,126	(8,742)	5,989,384
Trade accounts receivable	2,838,808	‐	2,838,808
Inventories	183,059	‐	183,059
Prepaid expenses (a)	272,060	(8,742)	263,318
Other assets	2,704,199		2,704,199
Non-current assets	25,959,763	5,264,856	31,224,619
Long-term receivables	4,074,137	(471)	4,073,666
Trade accounts receivable	130,308		130,308
Prepaid expenses (a)	74,381	(471)	73,910
Other assets	3,869,448		3,869,448
Property, plant and equipment (b)	11,203,622	5,265,327	16,468,949
Intangible assets	10,682,004		10,682,004

Liabilities and Shareholders’ Equity	31,957,889	5,256,114	37,214,003

Total Liabilities	12,163,052	5,256,114	17,419,166
Current Liabilities	7,075,379	785,065	7,860,444
Financial leasing (c)	205,048	785,065	990,113
Other liabilities	6,870,331		6,870,331
Non-Current Liabilities	5,087,673	4,471,049	9,558,722
Financial leasing (c)	964,289	4,471,049	5,435,338
Deferred income tax and social contribution	‐		‐
Other Liabilities	4,123,384		4,123,384
Shareholders’ Equity	19,794,837	‐	19,794,837
Capital stock	9,866,298		9,866,298
Revenue reserves	9,928,539		9,928,539

F-22

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

During the fiscal year ended December 31, 2019, the new accounting standards had the following impact on the income statement:

	Statements of income
	Balances without	Adjustments	Balances with
	IFRS 16	Adjustments	IFRS 16

Net revenue from services	16,597,155	‐	16,597,155
Net revenue from products	780,039	‐	780,039
Net revenue	17,377,194	‐	17,377,194
Cost of services provided and goods sold (a), (d)	(4,494,914)	1,193,407	(3,301,507)
	12,882,280	1,193,407	14,075,687
	(4,554,127)	122,278	(4,431,849)
Operating income (expenses)
Selling expenses (e)	(4,800,325)	70,935	(4,729,390)
General and administrative expenses (f)	(1,029,343)	51,343	(978,000)
Other revenues (expenses), net	1,275,541	‐	1,275,541
	8,328,153	1,315,685	9,643,838

Depreciation and amortization (g)	(4,188,837)	(940,144)	(5,128,981)

Financial income (expenses)	613,533	(592,323)	21,210

Income before income and social contribution taxes	4,752,849	(216,782)	4,536,067

Income and social contribution taxes (h)	(987,646)	73,706	(913,940)
Net income for the year	3,765,203	(143,076)	3,622,127

There is no material impact on other comprehensive results or basic diluted earnings per share.

	Statement of Cash Flows
	Balances without	Adjustments	Balances with
	IFRS 16	Adjustments	IFRS 16
Net income for the period before income tax and social contribution	4,752,850	(216,783)	4,536,067
Adjustments to reconcile net income to net cash generated by activities
Lease interest payable	229,139	592,324	821,463
Depreciation and amortization	4,188,837	940,144	5,128,981
Net cash from operations	5,749,042	1,315,684	7,064,726
Net cash invested in investment activities	(3,721,742)	-	(3,721,742)
Net cash used in financing activities	(827,120)	(1,315,684)	(2,142,804)
Increase in cash and cash equivalents	1,209,280	-	1,209,280
Cash and cash equivalents at the beginning of the year	1,075,530	-	1,075,530
Cash and cash equivalents at the end of the year	2,284,810	-	2,284,810

F-23

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The principal adjustments arising from the new standard are as follows:

(a) Reclassification of the agreement for reciprocal assignment with consideration for fiber optic infrastructure previously classified as prepaid expenses (Note 11) for property, plant and equipment – right-of-use under lease;

(b) Recognition of the asset – right-of-use under lease of the lease payments eligible for the new standard;

(d) Leasing – infrastructure (network, land and fiber optics);

(e) Leasing – stores & kiosks and vehicles;

(f) Leasing – administrative buildings and vehicles;

(g) Recognition of the depreciation of the assets mentioned above;

(h) Tax impact on the adjustments from the new standard.

IFRIC 23 – Uncertainty about the treatment of income taxes

The Interpretation deals with the accounting of taxes on profit in cases where the tax treatments involve uncertainty affecting the application of IAS 12 - Income Tax and does not apply to taxes outside the scope of IAS 12, nor specifically includes the requirements relating to interest and fines associated with uncertain tax treatments. The Interpretation specifically addresses the following:

How to apply the tax legislation to specific transactions or circumstances;
Or if the tax authorities would accept a specific tax treatment adopted by the entity. If the entity considers that a given tax treatment may not be accepted, the entity must use estimates (most probable or expected amount) to determine the tax treatment (taxable income, tax bases, tax liabilities not used, tax assets not used), income tax rates and others. This decision must rely on the method that provides the best estimates for resolution of the uncertainty.

The Company’s Management concluded that the application of this standard did not significantly impact the financial statements, since the most important judicial proceedings involving income tax and social contribution, as disclosed in Note 23, are considered by the administration and the legal counsels as being “more likely than not” in the arguments of the judicial spheres.

II) The following new standards were issued by International Standards Board (IASB) but are not in force for the period ended December 31, 2019.

· IFRS 17 – Insurance contracts

In May 2017, the IASB issued IFRS 17 – Insurance Contracts. The general purpose of IFRS 17 is to provide an accounting model for insurance contracts that is most useful and consistent for insurers.

F-24

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

· IFRS 3: Definition of business

In October 2018, the IASB issued changes to the business definition in IFRS 3 to help entities determine whether an acquired set of activities and assets consists of or not in a business. They clarify the minimum requirements for a company, eliminate the assessment of whether market participants are capable of replacing any missing elements, include guidance to help entities assess whether an acquired process is substantive, better delimit business and product definitions, and introduce an optional fair value concentration test. New illustrative cases have been provided along with the changes.

As the changes apply prospectively to transactions or other events that occur on or after the first application, the Company will not be affected by these changes on the transition date.

· IAS 8: Definition of material omission

In October 2018, the IASB issued amendments to IAS 1 and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of 'material misstatement' or 'material misstatement' across the standards and clarify certain aspects of the definition. The new definition states that: "the information is material if its omission, misstatement or obscureness could reasonably influence decisions that major users of general purpose financial statements make on the basis of those financial statements, which provide financial information about entity-specific reporting.

These changes are not expected to have a significant impact on the Company's consolidated financial statements.

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

Accounting estimates and judgments are continuously reassessed. They are based on the Company´s historical experience and other factors, such as expectations of future events, considering the circumstances as at the date of the financial statements.

By definition, the accounting estimates resulting from such assumptions rarely equal the actual outcome. The estimates and assumptions that present a significant risk of causing relevant adjustments in the book values of assets and liabilities in subsequent fiscal years are shown below:

(a) Impairment losses on non-financial assets

Losses due to impairment take place when the book value of an asset or cash generating unit exceeds its respective recoverable value, which is considered as the fair value less costs to sell and/or the value in use, whichever is greater. The calculation of the fair value less costs to sell is based on information available from sales transactions involving similar assets or market prices, less additional costs that would be incurred to dispose of those assets. The value in use is based on the discounted cash flow model.

F-25

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

Any reorganization activities to which the Company has not yet committed itself on the financial statements disclosure date, or any material future investments aimed at improving the asset base of the cash generating unit being tested, are excluded for the purpose of impairment testing.

The main non-financial assets valued this way were goodwill based on the future profitability recorded by the Company (Note 14) and its tangible assets.

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

Income tax and social contribution (current and deferred) are calculated in accordance with interpretations of the legislation currently in force and IAS 12. This process normally includes complex estimates to define the taxable income and temporary differences. In particular, deferred tax assets on income tax and social contribution losses and temporary differences are recognized to the extent that it is probable that future taxable income will be available and can be offset. The measurement of the recoverability of deferred income tax and social contribution losses carry-forward and of temporary differences takes into account the history of taxable income, as well as estimates of future taxable income (Note 10).

(c) Provision for legal and administrative proceedings

Legal and administrative proceedings are analyzed by the Company’s Management and internal and external legal advisors. The Company’s review takes into account factors such as the hierarchy of laws, case law available, recent court decisions, their relevance to the legal order, as well as payment history. Such reviews involve Management’s judgment (Note 23).

(d) Fair value of derivatives and other financial instruments

Financial instruments presented at fair value in the balance sheet are measured using evaluation techniques that take into account observable data or observable data derived from the market (Note 36).

(e) Unbilled revenue

Considering that some billing cut-off dates occur on intermediate dates within the months, at the end of each month there will be revenue already earned by the Company but not effectively billed to the customers. This unbilled revenue is recorded based on estimates which take into account data on usage, the number of days since the last billing date, among other factors (Note 26).

(f) Leasing

The Company has a significant number of lease agreements in which it is the lessee, whereby with the adoption of accounting standard IFRS 16 – Leasing, as disclosed in Note 2.f., the Company’s Management made certain judgments when measuring the lease liability and the right-of-use assets, such as: (i) an estimation of the lease term, considering a non-cancelable period and the periods covered by options to extend the lease term, where such exercise depends only on the Company and is reasonably certain; (ii) use of certain assumptions to calculate the discount rate.

F-26

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The Company is not able to readily determine the interest rate implicit in the lease and therefore considers its incremental rate on loans to measure lease liabilities. The incremental rate is the interest rate that the Company would have to pay when borrowing, for a similar term and with similar collateral, the resources necessary to obtain the asset with similar value to the asset with similar right of use in a similar economic environment. Therefore, this assessment requires management to consider estimates when no observable rates are available. Or when they need to be adjusted to reflect the terms and conditions of a lease. The Company estimates the incremental rate using observable data (such as market interest rates) when available and considers in this estimate aspects that are specific to the Company (such as the cost of the subsidiary's debt). The Company´s average incremental rate is 10.55% for an average lease term as described in note 13.

4 Cash and cash equivalents

These are financial assets measured at amortized cost through the effective interest rate method. The Company’s Management determines the classification of its financial assets upon initial recognition.

	2019	2018

Cash and banks	101,928	93,960
Unrestrictedly available financial investments:
CDBs/Repurchases	2,182,882	981,570

	2,284,810	1,075,530

Bank Deposit Certificates (“CDBs”) and Repurchases are nominative securities issued by banks and sold to the public as a means of raising funds. Such securities can be traded during the contracted period, at any time, without any significant loss of value, and are used to repay the short-term obligations of the Company.

The annual average return on the Company’s investments in CBDs and Repurchases is 99.95% (100.27% at December 31, 2018) of the Interbank Deposit Certificate (“CDI”) rate.

5 Marketable securities


	2019	2018

FUNCINE (3)	3,849	5,229
Fundo Soberano (4)	7,329	14,472
FIC: (1)
Government securities	179,390	292,708
Repo transactions (2)	216,196	289,352
Financial bills	105,857	96,868
Other (5)	145,707	91,441
	658,328	790,070

Current portion	(654,479)	(784,841)
Non-current portion	3,849	5,229

⁽¹⁾ In August 2017, the Company invested in open-ended Investment Funds in Units (“FICs”). The Funds are mostly made up of government securities and instruments of first-tier financial institutions. In 2019, the average yield of FICs was 99.67% (100.81 % as in December 31, 2018) of the variation of the CDI rate.

⁽²⁾ “Repo transactions” are securities issued by banks with a commitment to repurchase within one day at pre-established rates. These repo transactions are backed by federal government bonds and are used by the fund with the purpose of remunerating the capital available in cash.

⁽³⁾ In December 2017, in order to use the tax benefit of deductibility for income and social contribution tax purposes the Company invested the amount of R$3 million in the National Film Industry Financing Fund (“FUNCINE”). In 2018, the Company opted to make new investments in FUNCINE in the months of October and December in the total amount of R$2.4 million. In June 2019, the Company made new investments in the amount of R$2.2 million. The average remuneration in 2019 of FUNCINE was 9.18%.

⁽⁴⁾ “Fundo Soberano” includes federal securities only. The average remuneration in 2019 was 97.62% of the variation of the CDI rate.

⁽⁵⁾ Represented by: Debentures, FIDC, Trade Bills, Promissory Notes, Bank Credit Notes.

F-27

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

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. Accounts receivable from clients are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method less the 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 equals the carrying value recorded as at December 31, 2019 and 2018. A portion of the accounts receivable from clients is used to secure the total amount of BNDES borrowing (Note 19).

F-28

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)


	2019	2018
Trade accounts receivable	3,287,855	2,969,116

Gross accounts receivable	4,061,932	3,656,044

Billed services	2,076,569	1,733,229
Unbilled services	858,418	774,484
Network use (interconnection)	438,168	455,228
Sale of goods	670,573	691,312
Contractual asset (note 22)	15,142	130
Other accounts receivable	3,062	1,661

Provision for expected credit losses	(774,077)	(686,928)

Current portion	(3,184,780)	(2,838,808)
Non-current portion	103,075	130,308

The non-current portion includes the amount of R$68.639 (R$102.960 on December 31, 2018) related to accounts receivable from other telephone carriers, recorded at present value considering the period and implicit interest rate in the transaction.

Change in provision for expected credit losses, recorded as an asset reducing account, were as follows:


	2019	2018

Opening balance	686,928	464,745

Setup of provision (note 27)	748,291	544,881
Impact of adopting IFRS 9	-	130,137
Write-off of provision	(661,142)	(452,835)

Final Balance	774,077	686,928

The aging of accounts receivable is as follows:


	2019	2018

Total	4,061,932	3,656,044

Falling due	2,576,307	2,459,315
Overdue up to 30 days	328,457	308,744
Overdue up to 60 days	146,200	144,309
Overdue up to 90 days	149,852	117,759
Invoices overdue more than 90 days	861,116	625,917

F-29

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

7 Inventory

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


	2019	2018

Total inventories	203,278	183,059

Inventory	214,889	189,826
Mobile handsets and tablets	146,295	145,819
Accessories and prepaid cards	61,436	33,621
TIM chips	7,158	10,386

Losses on adjustment to realizable amount	(11,611)	(6,767)

8. Indirect taxes, charges and contributions recoverable


	2019	2018

Indirect taxes, charges and contributions recoverable	1,243,633	1,192,765

ICMS	1,201,502	1,152,741
Others	42,131	40,024

Current portion	(420,284)	(280,254)
Non-current portion	823,349	912,511

ICMS (value added tax on goods and services) amounts recoverable primarily refer to: (i) credits on the acquisition of property, plant and equipment directly related to the provision of telecommunication services (credits divided over 48 months), and (ii) ICMS amounts paid under the tax substitution regime from goods acquired for resale, mainly mobile handsets, chips, tablets and modems sold by TIM.

9. Direct taxes, charges and contributions recoverable


	2019	2018

Direct taxes, charges and contributions recoverable	3,762,800	905,521

Income tax (IR) and social contribution (CS) (i)	428,443	414,408
PIS / COFINS (ii)	3,244,549	384,093
Others	89,808	107,020

Current portion	(1,395,193)	(347,505)
Non-current portion	2,367,607	558,016

F-30

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

i) The amounts corresponding to income and social contribution taxes are substantially related to: (a) advances made over the period during which the use will take place at the closing of the current year and any balances in the next year; and (b) other income and social contribution tax credits from previous years whose current estimated period of use will be more than 12 months later.

(ii) The PIS/COFINS amounts recoverable mainly refer to credits from a legal proceedings 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 tax bases. According to the Company's internal evaluation, we expect to use such credits within the statute of limitations of up to 5 years.

In March 2017, the Federal Supreme Court (“STF”) recognized the unconstitutionality of including ICMS amounts in the calculation base of PIS and COFINS contributions. TIM S.A. (previously named “Intelig Telecomunicações Ltda.”), as the surviving company from the merger of TIM Celular S.A. and other entities existing in the Group in the past, which had filed proceedings of the same nature), has been challenging this issue in court since 2006, with effects retroactive to five years, as permitted by the legislation.

In June 2019, by reason of a final and without appeal decision and calculation of values, the amount of R$2,875 million was recorded, being R$1,720 million of which corresponds to the principal, and R$1,155 million to monetary adjustments (amounts relating to TIM Celular S.A., which merged into TIM S.A. in October 2018).

In September 2019, because a final, non-appealable judgment was entered and amounts were awarded, the amount of R$148 million was recorded, of which R$75 million corresponds to the principal, and R$73 million to monetary adjustments, and such amounts being related to TIM S.A. itself (when it still did business under the name Intelig Telecomunicações Ltda.).

The amount recorded are updated monthly at the interest rate equivalent to the reference rate of the Special Settlement and Custody System (Selic), available on the website of the Brazilian Federal Revenue.

10. Deferred income tax and social contribution

Deferred income tax and social contribution are recognized on: (1) accumulated income tax carried forward losses and negative basis of social contribution, and (2) temporary differences arising from differences between the tax bases of assets and liabilities and their carrying values in the financial statements. 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.

F-31

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

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, examined by the Supervisory Board and Statutory Audit Committee and approved by other Management bodies, indicate the likelihood of the future realization of those tax balances.

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.

As at December 31, 2019 and 2018, 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.

F-32

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The amounts recorded are as follows:

	2019	2018

Losses carried forward – income tax and social contribution	800,711	896,100
Temporary differences:
Provision for legal and administrative proceedings	295,853	293,349
Losses from doubtful accounts	271,611	244,428
Adjustments to present value – 3G license	7,182	9,124
Deferred income tax on accounting adjustments	56,208	58,268
Lease of LT Amazonas infrastructure	27,434	24,978
Profit sharing	23,704	22,181
Taxes with suspended enforceability	12,872	12,872
Amortized goodwill – TIM Fiber	(370,494)	(370,494)
Derivative financial instruments	(13,139)	(22,551)
Capitalized interest on 4G authorization	(291,783)	(301,525)
Deemed costs – TIM S.A.	(67,748)	(82,042)
Exclusion of ICMS from PIS and COFINS calculation bases	(1,023,928)	‐
IFRS16 Lease	209,234	-
Other	87,214	74,821
	24,931	859,509

Unrecognized deferred income tax and social contribution Taxes with suspended enforceability	(72,665)	(57,538)
	(47,734)	801,971

Deferred tax assets portion	‐	801,971
Deferred tax liabilities portion	(47,734)	‐

TIM S.A.

As previously communicated to the market, TIM Celular S.A. merged into TIM S.A. (previously named “Intelig Telecomunicações Ltda.”) on October 31, 2018 with the main objective of reducing the operating costs of the companies involved, creating synergies and enabling the achievement of the corporate purposes of the two companies. Thus, after the merger, tax credits may also arise from tax losses and negative social contribution base on the income of TIM S.A., considering that the latter, based on the consolidated results of TIM Celular after the said merger, estimates that the taxable income will be sufficient to use the said deferred credits.

On September 30, 2018 the Company recorded total deferred tax assets of R$952,368 arising from amounts that may be used as tax losses (R$702,619) and the negative base of social contribution on income (R$249,749), since all of the factors required for the merger were controlled by Management, such as: (i) the feasibility studies regarding the use of tax benefits was completed and approved by the Company’s governance bodies, as provided for in CVM 371/02; (ii) definition of the actual corporate restructuring schedule upon the merger; (iii) obtaining of approvals and/or consent of third parties (ANATEL and BNDES) by the Company, among other factors.

Due to the final unappealable decision issued by the Higher Courts in favor of TIM Celular S.A. (absorbed by TIM S.A.) in the action that discussed the exclusion of the ICMS from the base of calculation of PIS and COFINS contributions, a tax credit of R$2,875.5 million (R$ 2,862.7 million in December 31, 2019), including the principal amount and monetary adjustments, was recognized in the accounts in June 2019.

F-33

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

In September 2019, due to a final unappealable decision and calculation of amounts, the amount of R$148 million (R$ 149 million in December 31, 2019), was recorded relating to TIM S.A.

For purposes of IRPJ and CSLL taxation, the Company’s management, supported by the legal opinions of external counsels, decided to defer it until the moment that the credit is financially available. Thus, a deferred tax liability was recorded regarding the full amount of R$1,039.7 million.

Expectation of recovery of tax credits

The estimates regarding the recovery of tax assets were calculated taking into account the financial and business assumptions available at the close of the tax year of 2019.

Based on these projections, the Company expects to recover the credits as follows:

	Deferred income tax and social contribution
2020	229,151
2021	275,425
2022	296,135
2023	-
Tax losses and negative base	800,711

Temporary differences	(848,445)

Total	(47,734)

The subsidiary has set up deferred income and social contribution tax credits on its total tax losses, negative basis of social contribution and temporary differences, based on the history of profitability and projected future taxable earnings.

The subsidiary used credits related to tax losses carried forward and the negative basis of social contribution in the amount of R$91,731 for the period ended December 31, 2019 (R$85,812 on December 31, 2018).

Unrecognized deferred tax assets

Considering that TIM Participações S.A. does not carry out activities that could generate taxable profits, deferred tax credits arising from income tax and social contribution tax losses and temporary differences, totaling R$125,876 as at December 31, 2019 (R$107,092 on December 31, 2018) were not recognized.

F-34

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

11. Prepaid expenses


	2019	2018

	245,524	346,441
Advertising not released (1)	854	76,651
Rentals and insurance	75,809	78,005
Network Swap (2)	‐	11,449
Incremental costs for obtaining customer contracts (3)	158,093	173,056
Others	10,768	7,280

Current portion	(175,868)	(272,060)
Non-current portion	69,656	74,381

(1) Represents the early payment of expenses from the advertising of TIM brand’s products and services, which were recognized in income for the period during which the advertising was broadcast.

(2) On April 1, 2010, the subsidiary TIM S.A. and GVT entered into an onerous contract and a reciprocal agreement for the assignment of fiber optic infrastructure (network swap), in order to expand their respective areas of operation. Given the economic nature of the transaction, the amount was recognized in the (current and non-current) prepaid expenses and deferred revenue (current and non-current) and is amortized to income according to the contract’s term. This contract is within the scope of IFRS 16. Therefore, it was reclassified to right-of-use in leases under property, plant and equipment, as shown in Note 2.f.

(3) This is mainly represented by incremental costs related to sales commissions paid to sales agents in order to obtain customer contracts arising from the adoption of IFRS 15, which are deferred to income according to the term and/or economic benefit of the contract, which is usually two years.

12. Judicial deposits

These are recorded at their historical costs and updated according to the legislation in force:


	2019	2018

	1,006,899	1,345,113

Civil	355,093	334,028
Labor	245,928	492,000
Tributary	203,110	299,310
Regulatory	111	111
Online attachment (*)	202,657	219,664

(*) Refers to blocked judicial deposits directly on the Company´s bank accounts and financial investments related to certain judicial proceedings. This amount is analyzed periodically and, when identified, is reclassified to one of the other specific accounts of judicial deposits.

F-35

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(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 legal proceedings challenging the amounts fixed by ANATEL to leave certain transmission sub-bands to allow the implementation of 4G technology. In this case, the updated court deposit amounted to R$69,326 (R$66,700 as at December 31, 2018).

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.

The reduction is substantially due to the closure of several court cases offset by the corresponding court deposits.

Tax

The Company and its subsidiary have made court deposits related to various current tax court proceedings. These deposits refer mainly to the following matters:

(i)	Use of credit for the purchase of electricity used directly by the companies for production purposes. The court is likely to give a favorable judgment. The current value of these deposits is R$73,326 (R$74,358 as at December 31, 2018).

(ii)	Liability for CPMF on the Company’s capitalization of loans; recognition of the right not to pay contributions allegedly due on mere changes in the ownership of current accounts as a result of a takeover. The current value of these deposits is R$10,342 (R$10,026 as at December 31, 2018).

(iii)	Constitutionality of the collection of the Operations Monitoring Charge (“TFF”) by a number of municipal authorities. The current value of these deposits is R$18,401 (R$16,719 as at December 31, 2018).

(iv)	Failure to approve the offsetting of federal debts against credits for withholding tax (“IRRF”) because it is alleged that the credits are insufficient, as well as the deposit placed to ensure the issue of a Tax Clearance Certificate. The current value of these deposits is R$11,173 (R$10,868 as at December 31, 2018).

(v)	Liability for ISS (Tax on Services) on import services and outsourced services; alleged failure to pay for land clearance and Base Transceiver Station (“BTS”) maintenance services, for ISS on the Company’s services and for ISS on co-billing services and software licensing (Blackberry). The Company´s right is to take advantage of the benefit of spontaneous declaration in order to reverse confiscatory fines for late payment. The current value of these deposits is R$7,878 (R$7,519 as at December 31, 2018).

F-36

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(vi)	Ancillary services provided for in ICMS Agreement 69/98 related to ICMS levied on amounts related to communications services charged for access, subscription, activation, habilitation availability, subscription and use of services, among others. The current value of these deposits is R$3,457 (R$4,793 as at December 31, 2018).

(vii)	Requirement by ANATEL of the Public Price Referring to the Administration of Numbering Resources. The current value of these deposits is R$3,471 (R$3,380 as at December 31, 2018).

(viii)	Deposit made by TIM S.A. related to the unconstitutionality and illegality of charging by the Telecommunications Services Universalization Fund (“FUST”). Plea for the recognition of the right not to pay FUST, and not to include in its calculation base interconnection and Industrial Exploration of Dedicated Line (“EILD”) revenue, as well as for the right not to be charged retroactively for differences arising from failure to comply with ANATEL Ruling 7/2005. The current value of these deposits is R$57,943 (R$56,088 as at December 31, 2018).

13 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. At December 31, 2019 and 2018 the Company has no indication of impairment in its fixed assets.

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 carrying values at the time of the transaction and are recognized in “other operating expenses (revenue), net” in the statement of income.

F-37

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(a) Changes in property, plant and equipment

	Balance for Dec/18	Adoption of IFRS 16	Additions	Disposals	Transfers	Other changes (*)	Balance for Dec/19
Total cost of property, plant and equipment, gross	33,832,803	5,256,114	4,855,684	(183,384)	-	(408,118)	43,353,099
Commutation/transmission equipment	20,806,249	‐	17,662	(133,789)	2,121,907	-	22,812,029
Fiber optic cables	762,175	‐	‐	‐	51,414	-	813,589
Leased handsets	2,313,945	‐	519	(20,194)	195,725	-	2,489,995
Infrastructure (i)	6,133,810	‐	‐	(18,684)	294,851	(313,130)	6,096,847
Informatics assets	1,679,328	‐	‐	(9,366)	51,289	-	1,721,251
General use assets	796,839	‐	‐	(623)	63,289	-	859,505
Rights-of-use in leases (ii) (Note 2.f)	‐	5,256,114	1,772,290	‐	-	(94,988)	6,933,416
Land	40,794	‐	‐	‐	‐	-	40,794
Construction in progress	1,299,663	‐	3,065,213	(728)	(2,778,475)	-	1,585,673

Total of Accumulated depreciation	(22,629,181)	‐	(3,262,726)	150,972	‐	-	(25,740,935)
Commutation/transmission equipment	(14,936,069)	‐	(1,577,490)	129,998	‐	-	(16,383,561)
Fiber optic cables	(345,532)	‐	(65,035)	‐	‐	-	(410,567)
Leased handsets	(2,132,227)	‐	(131,341)	6,705	‐	-	(2,256,863)
Infrastructure (i)	(3,157,890)	‐	(440,224)	4,281	‐	-	(3,593,833)
Informatics assets	(1,512,114)	‐	(62,561)	9,366	‐	-	(1,565,309)
General use assets	(545,349)	‐	(45,931)	622	‐	-	(590,658)
Right-of-use in leases (ii) (Note 2.f)	‐	‐	(940,144)	‐	‐	-	(940,144)

Total property, plant and equipment, net	11,203,622	5,256,114	1,592,958	(32,412)	-	(408,118)	17,612,164
Commutation/transmission equipment	5,870,180	‐	(1,559,828)	(3,791)	2,121,907	-	6,428,468
Fiber optic cables	416,643	‐	(65,035)	‐	51,414	-	403,022
Leased handsets	181,718	‐	(130,822)	(13,489)	195,725	-	233,132
Infrastructure (i)	2,975,920	‐	(440,224)	(14,403)	294,851	(313,130)	2,503,014
Informatics assets	167,214	‐	(62,561)	‐	51,289	-	155,942
General use assets	251,490	‐	(45,931)	(1)	63,289	-	268,847
Rights-of-use in leases (ii) (Note 2.f)	‐	5,256,114	832,146	‐	-	(94,988)	5,993,272
Land	40,794	‐	‐	‐	‐	-	40,794
Construction in progress	1,299,663	‐	3,065,213	(728)	(2,778,475)	-	1,585,673

F-38

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)


	Balance for Dec/17	Additions/ Depreciation	Disposals	Transfers	Balance for Dec/18
	Balance for Dec/17	Additions/ Depreciation	Disposals	Transfers	Balance for Dec/18
Total cost of property, plant and equipment, gross	31,166,905	2,746,039	(80,141)	‐	33,832,803
Commutation/transmission equipment	18,766,840	8,974	(48,203)	2,078,638	20,806,249
Fiber optic cables	683,971	20	‐	78,184	762,175
Leased handsets	2,181,630	‐	(15,675)	147,990	2,313,945
Infrastructure	5,652,840	678	(4,562)	484,854	6,133,810
Informatics assets	1,615,325	9	(9,511)	73,505	1,679,328
General use assets	739,439	286	(2,018)	59,132	796,839
Land	40,794	‐	‐	‐	40,794
Construction in progress	1,486,066	2,736,072	(172)	(2,922,303)	1,299,663
					‐
Total Accumulated depreciation	(20,328,417)	(2,371,362)	70,598	‐	(22,629,181)
Commutation/transmission equipment	(13,373,003)	(1,610,326)	47,260	‐	(14,936,069)
Fiber optic cables	(290,699)	(54,833)	‐	‐	(345,532)
Leased handsets	(2,016,018)	(124,709)	8,500	‐	(2,132,227)
Infrastructure	(2,697,878)	(463,856)	3,844	‐	(3,157,890)
Informatics assets	(1,448,694)	(72,885)	9,465	‐	(1,512,114)
General use assets	(502,125)	(44,753)	1,529	‐	(545,349)

Total property, plant and equipment, net	10,838,488	374,677	(9,543)	‐	11,203,622
Commutation/transmission equipment	5,393,837	(1,601,352)	(943)	2,078,638	5,870,180
Fiber optic cables	393,272	(54,813)	‐	78,184	416,643
Leased handsets	165,612	(124,709)	(7,175)	147,990	181,718
Infrastructure	2,954,962	(463,178)	(718)	484,854	2,975,920
Informatics assets	166,631	(72,876)	(46)	73,505	167,214
General use assets	237,314	(44,467)	(489)	59,132	251,490
Land	40,794	‐	‐	‐	40,794
Construction in progress	1,486,066	2,736,072	(172)	(2,922,303)	1,299,663

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.

(*) Other changes include:

(i)	In 2019, the "Sale of Towers (leaseback)" lease had its value remeasured for better alignment with the methodology of the new IFRS 16, based on paragraph C11 of this new pronouncement and removed the projected inflation component on future receipts, in the amount of R$ 313,130.

(ii)	In the fourth quarter of 2019, the Company implemented a new tool that allowed Management to control and calculate in an automated manner the accounting effects arising from lease agreements. Through this new tool, it was possible to identify adjustments in the amount of R$94,988 of these assets (note 2).

F-39

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

	Lease operation - network	Lease operation - vehicles	Lease operation – Stores & kiosks	Lease operation - Property	Lease operation – Land (Network)	Total
	Lease operation - network	Lease operation - vehicles	Lease operation – Stores & kiosks	Lease operation - Property	Lease operation – Land (Network)	Total
Balances as at January 01, 2019	2,625,145	6,792	375,286	1,540,685	708,206	5,256,114
Additions in the period, net of cancellation	928,682	5,045	191,597	322,067	324,899	1,772,290
Remensuration	5,841	(500)	5,895	(138,967)	32,743	(94,988)
Depreciation	(387,526)	(4,349)	(93,306)	(183,872)	(271,091)	(940,144)
Balances as at December 31, 2019	3,172,142	6,988	479,472	1,539,913	794,757	5,993,272
Useful Life - %	10.98	44.81	21.04	11.97	31.25

In the fourth quarter of 2019, the Company implemented a new tool that allowed Management to control and calculate in an automated manner the accounting effects arising from lease agreements. Therefore, this new tool allowed Management to make individualized calculations, both in relation to the measurement of the effects of assets and liabilities of leases, and also in relation to the monthly calculation of depreciation and interest that affect the result, which prior to the implementation of this new tool were made considering an average depreciation term and discount rate for each asset class (for example: land and infrastructure sharing).

Therefore, through this new tool, it was possible to re-measure the depreciation and amortization accounts, financial income (expenses) and, consequently, income tax and social contribution resulting from the individualized calculations that were made.

(b)Depreciation rates

		Annual Rate %
Commutation/transmission equipment		8 to 14.29
Fiber optic cables		4 to 10
Leased assets		14.28 to 50
Infrastructure		4 to 20
Informatic assets		10 to 20
General use assets		10 to 20

In 2019, pursuant to IAS 16, approved by a CVM Deliberation, the Company and its subsidiaries 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.

F-40

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

14. 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. Intangibles also include: (i) the purchase of the right to use the infrastructure 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. As at December 31, 2019 and 2018, the Company has no indication of impairment in its intangible assets of defined and indefinite useful life.

The amounts of the SMP authorizations and rights to use radio frequencies, as well as software, goodwill and other items, were recorded as follows:

(a) Changes in intangibles


	Balance for Dec/18	Additions/ Amortization	Transfers	Other Changes (g)	Balance for Dec/19
	Balance for Dec/18	Additions/ Amortization	Transfers	Other Changes (g)	Balance for Dec/19
Total cost of intangible assets, gross	29,366,779	961,213	‐	(98,633)	30,229,359
Right to use software	17,142,641	‐	1,041,741	‐	18,184,382
Authorizations	7,638,970	26,968	2,255,625	(109,770)	9,811,793
Goodwill	1,527,219	‐	‐	‐	1,527,219
Right to use infrastructure - LT Amazonas	198,202	‐	‐	(28,874)	169,328
Other assets	307,654	‐	19,708	‐	327,362
Intangible assets under development	2,552,093	934,245	(3,317,074)	40,011	209,275

Accumulated amortization	(18,684,775)	(1,876,258)	‐	‐	(20,561,033)
Right to use software	(13,681,086)	(1,412,080)	‐	‐	(15,093,166)
Authorizations	(4,845,642)	(432,771)	‐	‐	(5,278,413)
Right to use infrastructure - LT Amazonas	(52,441)	(7,763)	‐	‐	(60,204)
Other assets	(105,606)	(23,644)	‐	‐	(129,250)

Total intangible assets, net	10,682,004	(915,045)	‐	(98,633)	9,668,326
Right to use software (c)	3,461,555	(1,412,080)	1,041,741	‐	3,091,216
Authorizations	2,793,328	(405,803)	2,255,625	(109,770)	4,533,380
Goodwill (d)	1,527,219	‐	‐	‐	1,527,219
Right to use infrastructure - LT Amazonas (e)	145,761	(7,763)	‐	(28,874)	109,124
Other assets	202,048	(23,644)	19,708	‐	198,112
Intangible assets under development (f)	2,552,093	934,245	(3,317,074)	40,011	209,275

F-41

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)


	Balance Dec/17	Additions/ Amortization	Transfers	Disposals	Capitalized interest	Balance for Dec/18
	Balance Dec/17	Additions/ Amortization	Transfers	Disposals	Capitalized interest	Balance for Dec/18
Total cost of intangible assets, gross	28,549,552	1,139,993	(479,811)	(1,270)	158,315	29,366,779
Right to use software	15,957,808	‐	1,186,103	(1,270)	‐	17,142,641
Authorizations	6,391,394	94,148	1,153,428	‐	‐	7,638,970
Goodwill	1,527,219	‐	‐	‐	‐	1,527,219
Costs with commissions to deferred sales representatives	384,455	‐	(384,455)	‐	‐	‐
List of clients	95,200	‐	(95,200)	-	-	‐
Right to use infrastructure - LT Amazonas	198,202	‐	‐	‐	‐	198,202
Other assets	270,687	‐	36,967	‐	‐	307,654
Intangible assets under development	3,724,587	1,045,845	(2,376,654)	‐	158,315	2,552,093

Accumulated amortization	(17,237,025)	(1,799,914)	350,894	1,270	‐	(18,684,775)
Right to use software	(12,265,391)	(1,416,965)	‐	1,270	‐	(13,681,086)
Authorizations	(4,497,758)	(347,884)	‐	‐	‐	(4,845,642)
Costs with commissions to deferred sales representatives	(255,694)	‐	255,694	‐	‐	‐
List of clients	(95,200)		95,200	-	-	‐
Right to use infrastructure - LT Amazonas	(42,531)	(9,910)	‐	‐	‐	(52,441)
Other assets	(80,451)	(25,155)	‐	‐	‐	(105,606)

Total intangible assets, net	11,312,527	(659,921)	(128,917)	‐	158,315	10,682,004
Right to use software (c)	3,692,417	(1,416,965)	1,186,103	‐	‐	3,461,555
Authorizations	1,893,636	(253,736)	1,153,428	‐	‐	2,793,328
Goodwill (d)	1,527,219	‐	‐	‐	‐	1,527,219
Costs with commissions to deferred sales representatives (Note 11.3)	128,761	‐	(128,761)	‐	‐	‐
Right to use infrastructure - LT Amazonas (e)	155,671	(9,910)	‐	‐	‐	145,761
Other assets	190,236	(25,155)	36,967	‐	‐	202,048
Intangible assets under development (f)	3,724,587	1,045,845	(2,376,654)	‐	158,315	2,552,093

Intangible assets under development represents the cost of projects in progress related to the acquisition of 4G authorizations and/or other intangible assets during the period of their construction and installation, up to the moment when they enter into operation, where they will be transferred to the corresponding accounts for these assets. In addition, these intangible assets were assessed for impairment as at December 31, 2019 and 2018, with no necessary adjustment.

(b) Amortization rates

	Annual rate %

Right to use software	20
Authorizations	5 to 50
Right to use infrastructure	5
Other assets	7 to 10

F-42

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The costs associated with maintaining software are recognized as expenses as they are incurred. Identifiable and unique development costs that are directly attributable to the design and testing of software products controlled by the Group are recognized as intangible assets when all capitalization criteria are met.

Directly attributable costs, which are capitalized as part of the software product, include costs for employees directly allocated to its development.

(d) Goodwill from previous years

The Company and its subsidiary have the following goodwill based on expectations of future profitability as at December 31, 2019 and 2018:

Goodwill on acquisition of TIM S.A. - The goodwill arising from the acquisition of TIM S.A. (formerly Intelig) in December 2009 in the amount of R$210,015 is based on the subsidiary’s expected profitability. The recoverability of goodwill is tested annually through impairment testing.

Goodwill from TIM Fiber SP and TIM Fiber RJ acquisitions - At the end of 2011, the subsidiary acquired 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 the subsidiary TIM S.A. on August 29, 2012.

The subsidiary 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$1,159,648.

Goodwill from the acquisition of minority interests in TIM Sul and TIM Nordeste - In 2005, the Company acquired 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 standards, the Company tests goodwill on business combinations involving TIM Group companies annually for impairment, and the methods and assumptions used by Management in the impairment testing of goodwill mentioned above are summarized below:

The Company’s Management understands that the smaller cash generating units, for the purposes of testing the impairment of goodwill on the purchase of the aforementioned companies, refer to the business at a consolidated level, and therefore should be assessed at the level of TIM Participações. This methodology is aligned with the strategic direction of the Company and its subsidiary.

F-43

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

In 2019 the impairment test was performed comparing the carrying amount with the fair value less the costs of disposal of the asset, as provided in IAS 36.

The fair value calculation considered the hierarchy level within which the fair value measurement of the asset (cash generating unit) is classified. For TIM Participações 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 carrying amount of the cash generating unit.

The fair value of Level 1 instruments comprises instruments traded in active markets and based on quoted market prices at the balance sheet date. A market is viewed as active if quoted prices are readily and regularly available from an exchange, distributor, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on a purely commercial basis.

In the case of TIM Participações, its securities are traded on BOVESPA with a code (TIMP3) 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 quantity held by the entity.

The measurement was made based on the share value on the balance sheet date and sensitivity tests were also performed and in none of the scenarios was identified any indication of impairment, with the fair value being higher than the carrying amount. Therefore, as the fair value is higher than the carrying amount, it is not necessary to calculate the value in use.

(e) Infrastructure use rights - LT Amazonas

The subsidiary signed agreements for the right to use the infrastructure of companies that operate electric power transmission lines in Northern Brazil. Such agreements fell within the scope of IFRIC 4 and are classified as financial leases.

Additionally, the subsidiary entered into network infrastructure sharing contracts with Telefônica Brasil S.A. also in the Northern region. In these contracts, both operators optimize resources and reduce their operational costs (Note 15).

(f) Auction and payment of 4G License 700 MHz

In 2018 the Intangible assets in progress are substantially represented by costs for the development of 4G technology, which included: (i) amounts paid to obtain 4G Licenses; (ii) costs for cleaning the 700 MHZ frequency band; and (iii) financial costs capitalized on qualifiable assets, as detailed below:

(i)	On September 30, 2014, the subsidiary purchased Lot 2 in the Auction of the 700 MHz band in the amount of R$1,739 million. In December 2014, the Company made the payment of R$ 1,678 million, recording the remaining balance payable in the amount of R$ 61 million as a liability (note 18), as provided for in the announcement.

	The subsidiary is challenging the remaining balance with Anatel, which is subject to interest rates of 1% p.m. and monetary adjustment at the IGP-DI. These amounts are capitalized by the Company. The impact for the tax year ended December 31, 2019 was R$1,636 (R$5,611 on December 31, 2018) of interest and R$735 (R$5,930 on December 31, 2018) of monetary adjustments.

F-44

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(ii)

Additionally, as determined in the call notice, the Company has borne the costs for the cleaning of the frequency band purchased. The nominal amount due from the Company in relation to the cleaning of the 700 MHZ frequency of the lot purchased was R$904 million. The Company also had an additional cost of R$295 million related to the portion that has not been bought in the auction, and that was subsequently split by ANATEL among the companies that won the auction, totaling R$1,199 million.

In order to perform the spectrum cleaning activities, in March 2015 TIM, together with other companies that won the auction, have constituted a Redistribution and Digitalization Management Entity for TV and RTV Channels, named “Entidade Administradora da Digitalização", or "EAD”. From 2015 to 2018, TIM, along with the other companies that won the auction, will disburse amounts in accordance with the schedule provided for in the public notice to cover the EAD costs related to these cleaning activities. Because the amount payable of R$1,199 million relates to a long-term obligation, it was reduced by R$47 million through an adjustment to Net Present Value (“NPV”).

The Company made the payments as at April 9, 2015, January 26, 2017 and January 16, 2018 in the amounts of R$370,379, R$858,991 and R$142,862, respectively.

The license mentioned above relates to the concept of a qualifying asset. Consequently, the finance charges on funds raised without a specific destination, used for the purpose of obtaining a qualifying asset, are capitalized at the average rate of 6.90 % per annum in connection with the borrowing and financing in force during the tax year. The amount capitalized during the tax year ended December 31, 2019 was R$38,375 (R$152,480 as at December 31, 2018).

In September 2019, the assets were considered in operation by Management and from this date on, the capitalization of interest and charges on this asset was closed

(g) Other changes

“Other changes” include:

(i)	the remeasurement of amounts of authorizations in accordance with Anatel Resolution 695/18 in the amount of R$109,770;

(ii)	interest capitalized as a result of the acquisition of the 4G license, in accordance with IAS 23 in the amount of R$40,011, since the respective license is an asset that qualifies for interest capitalization.

(iii)	In 2019, the item "Right to use infrastructure - LT Amazonas", had its value remeasured for better alignment with the methodology of the new IFRS 16, removing the projected inflation component on future receipts, in the amount of R$28,874.

F-45

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

15 Financiale leases

Leases in which the Company, as the lessee, substantially holds all of the risks and benefits of ownership, are classified as financial leases, which are capitalized at the beginning of the lease at the lower of the fair value of the leased item and the present value of the payments provided for in the agreement. Interest related to the leases is taken to income as financial costs over the term of the contract.

The subsidiary entered into tower lease agreements, as a lessee, arising from a sale and financial leaseback operation involving the sale of an asset and the concomitant lease of the same asset by the purchaser to the seller.

The subsidiary recognized a liability corresponding to the present value of the compulsory minimum installments under the agreement.

Leases in which the Company, as lessor, substantially transfers the risks and benefits of the ownership to the other party (the lessee) are classified as financial 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 income over the contractual term.

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

Assets


	2019	2018

LT Amazonas	156,378	208,049
	156,378	208,049

Current portion	(4,931)	(22,491)
Non-current portion	151,447	185,558

LT Amazonas

As a result of the agreement entered into with LT Amazonas, the subsidiary entered into network infrastructure sharing agreements with Telefônica Brasil S.A. Under these agreements, the subsidiary and Telefônica Brasil S.A. make joint investments in the Northern region of Brazil. The subsidiary has receivables against Telefônica Brasil S.A. that have to be paid on a monthly basis for a period of 20 years. These amounts are annually restated by IPC-A (Price Index Rate). The consolidated nominal amount of future installments receivable by the subsidiary is R$316,641 (R$499,823 on December 31, 2018).

The table below includes the schedule of cash receipts for the agreement currently in force. The amounts represent the cash receipts estimated in the signed agreements and are stated at their nominal amounts. It is worthwhile noting that these balances differ from those shown in the books since, in the case of the latter, the amounts are shown at their present value:

F-46

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

	Nominal amount	Present Value

January 2020 to December 2020	23,206	4,931
January 2021 to December 2024	92,826	58,081
January 2025 onwards	200,609	93,366
	316,641	156,378

The present value of installments receivable is R$156,378 (R$208,049 as at December 31, 2018), consisting entirely of principal and estimated as at the date of execution of agreements entered into with the transmission companies, projecting future cash receipts discounted at 12.56% per annum. In 2019, its value was reassessed to better align it with the methodology of the new standard IFRS 16, removing the component of projected inflation on future income, in the amount of R$ 48,991.

Regarding the values present in the leases, this is represented by the principal amount without any projection of financial charges.

Liabilities


	2019	2018

LT Amazonas (i)	276,233	359,987
Sale of towers (leaseback) (ii)	1,192,596	1,501,695
Other (iv)	115,973	78,392
Subtotal	1,584,802	1,940,074

Other lease operations (Note 2.f) and (iii):		-
Lease– Network	3,294,261	-
Lease – Vehicles	3,005	-
Lease – Stores and kiosks	255,857	-
Lease - Properties	243,921	-
Lease - Land (network)	1,600,456	-
Lease – Fiber	798,568	-
Subtotal (IFRS 16)	6,196,068	-
Total	7,780,870	1,940,074

Current portion	(873,068)	(205,048)
Non-current portion	6,907,802	1,735,026

Interest paid in the period ended December 31, 2019 regarding IFRS16 amounted to R$592,323.

Changes to the financial liabilities of lease operations are shown in Note 36.

i) LT Amazonas

The subsidiary 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.

F-47

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The table below presents the future payment schedule for the agreements in force. These amounts represent the estimated disbursements under the agreements executed with distributors and are shown at their nominal amounts. These balances differ from those shown in the books since, in the case of the latter, the amounts are shown at present value:

	Nominal amount	Present value

January 2020 to December 2020	44,079	8,451
January 2021 to December 2024	176,315	103,464
January 2025 onwards	381,161	164,318
	601,555	276,233

The consolidated nominal value of future installments due from the Company is R$601,555. Its present value is R$276,233, composed entirely of principal and was estimated on the date on which the agreements were signed with the transmission companies by projecting the future payments and discounting these at 14.44% per annum. Additionally, the right to use balance of LT Amazonas also includes R$70,759 related to investments in property, plant and equipment made by the Company and subsequently donated to the electric power transmission companies. These donations are already included in the contract signed by the parties. In 2019, its value was reassessed according to the IFRS 16 calculation methodology, removing the component of projected inflation on future payments and maintaining the original discount rate for calculating present value.

Regarding the values present in the leases, this is represented by the principal amount without any projection of financial charges.

ii) Sale and leaseback of Towers

The subsidiary 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 provide for the towers to be transferred in tranches to ATC, due to the need to meet certain conditions precedent.

In total, 5,873 transfers of towers occurred, 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 22).

The discount rate used in the transaction was determined on the basis of observable market transactions that the Company (the lessee) would have to pay under a similar lease or loan, as mentioned below.

The table below includes the schedule of payments of the agreement in force in relation to the MLA. The amounts represent the disbursements estimated in the agreement signed with ATC, stated at their nominal amounts. It should be noted that these balances differ from those shown in the books since, in the case of the latter, the amounts are shown at their present values:

F-48

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

	Nominal amount	Present value

January 2020 to December 2020	187,720	32,734
January 2021 to December 2024	750,881	449,470
January 2025 onwards	1,991,762	710,392
	2,930,363	1,192,596

The consolidated nominal amount of the sum of future installments payable by the subsidiary is R$2,930,363. The present value is R$1,192,596, consisting entirely of principal. The present value was estimated by projecting future payments discounted at the discount rates used on the transaction date, ranging from 11.01% to 17.08% per annum, and which were determined on the basis of observable market transactions that the Company (the lessee) would have to pay under a similar lease and/or loan. In 2019, its value was reassessed according to the IFRS 16 calculation methodology, removing the component of projected inflation on future payments and maintaining the original discount rate for calculating present value.

Regarding the values present in the leases, this is represented by the principal amount without any projection of financial charges.

(iii) Other lease operations

In addition to the lease operations mentioned above, the Company also has lease agreements that qualify within the scope of IFRS16.

The following table shows the payment schedule of those agreements in effect. The amounts represent the estimated disbursements within the agreements signed and are shown at their face value. The balances differ from those shown in the books, since in the latter case the amounts are shown at present value:

	Up to December 2020	January 2021 to December 2024	January 2025 onwards	Nominal amount	Present values
Total other lease operations	1,388,262	4,284,210	3,617,001	9,289,474	6,196,068
Lease operation - network	623,670	2,291,331	2,059,339	4.974341	3,294,261
Lease operation - vehicles	5,039	2,848	-	7,886	3,005
Lease operation – Stores & kiosks	82,958	174,338	52,426	309,721	255,857
Lease operation - Property	51,317	176,575	156,560	384,452	243,921
Lease operation – Land (Network)	298,389	1,035,594	1,348,676	2,682,660	1,600,456
Lease operation – Fiber	326,889	603,524	-	930,414	798,568

The present value, principal and interest as at December 31, 2019 for the agreements above, was estimated on a monthly basis, based on the average incremental rate of the Company’s loans, namely 10.55%.

Lease amounts considered low, or lower than 12 months, recognized in rental expenses amounted to R$82,110 on December 31, 2019.

F-49

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(iv) Substantially represented by the financial leases of transmission towers.

16. 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 toward settlement of the TFF payable to Fistel annually in the month of March.

On December 31, 2019 this credit are up to R$ 33,090 (R$ 41,612 on December 31, 2018).

F-50

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

17. Suppliers

Supplier accounts payable are obligations to pay for goods or services that were purchased in the normal course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method. Given the short maturity terms of these obligations, in practice they are usually recognized at the invoice value.

	2019	2018

	3,923,035	4,323,374

Local currency	3,769,298	4,158,599
Suppliers of materials and services (a)	3,667,152	4,027,092
Interconnection (b)	67,396	98,060
Roaming (c)	441	162
Co-billing (d)	34,309	33,285

Foreign currency	153,737	164,775
Suppliers of materials and services (a)	116,057	137,397
Roaming (c)	37,680	27,378

Current portion	3,923,035	4,323,374

(a) Represent the amounts to be paid to suppliers for acquisitions of materials and for the provision of services relating to tangible and intangible assets or for consumption in operations, maintenance and management, as provided for in the agreement between the parties.

(b) This refers to the use of the networks of other landline and mobile telephone operators, with calls being initiated from TIM’s network and ending on the networks of other operators.

(c) This refers to calls made by customers outside their registration area, who are therefore considered visitors to other operator networks.

(d) This refers to calls made by a customer who has used another long-distance operator.

18. Authorizations payable

As at December 31, 2019, the Company and its subsidiary had the following commitments to ANATEL:


	2019	2018

Renewal of authorizations (i)	199,363	300,253
Updated ANATEL liability (ii)	126,974	113,547
	326,337	413,800
Current portion	(88,614)	(65,464)
Non-current portion	237,723	348,336

F-51

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(i)

In order to provide SMP services, the company obtained radio frequency authorizations for a fixed period, renewable for a further 15 years. The extension of the right-of-use includes the payment of 2% of the net revenue recorded in the regions covered by the authorization that ends every two years. As at December 31, 2019, the subsidiary had balance due related to the renewal of authorizations in the amount of R$199,363 (R$300,253 as at December 31, 2018).

(ii)

On December 05, 2014 the subsidiary signed an Authorization Instrument for the 700 MHz band and paid an amount equivalent to R$1,678 million, recording the remaining balance of R$61 million as a trade liability, according to the payment method provided for in the call notice. Due to the absence of bids for some lots in the Call Notice for the 700 MHZ band, the subsidiary, along with other bidders, had to bear a proportion of the costs of these lots. Thus, the EAD was organized, with respect to which the total commitment assumed by the subsidiary was R$1,199 million. This amount was paid in four installments adjusted by the IGP-DI (Daily General Price Index) (Note 14.f).

As at June 30, 2015, the subsidiary filed a lawsuit challenging a surplus charge of R$61 million (R$127 million as at December 31, 2019), which is still pending trial.

The authorizations held on a primary basis by TIM S.A. as at December 31, 2019, as well as their maturity dates, are detailed below:

	Maturity date
Authorization instruments	450 MHz	800 MHz, 900 MHz and 1,800 MHz	Additional frequencies 1,800 MHz	1,900 MHz and 2,100 MHz (3G)	2,500 MHz V1 Band (4G)	2,500 MHz (P Band (4G)**	700 MHz (4G)
Amapá, Roraima, Pará, Amazonas and Maranhão	-	March, 2031*	April, 2023	April, 2023	October, 2027	Part of AR92 (PA) – February, 2024*	December, 2029
Rio de Janeiro and Espírito Santo	October, 2027	March, 2031*	ES - April, 2023	April, 2023	October, 2027	Part of AR21 (RJ) – February, 2024*	December, 2029
Acre, Rondônia, Mato Grosso, Mato Grosso do Sul, Tocantins, Distrito Federal, Goiás, Rio Grande do Sul (except the municipality of Pelotas and region) and the municipalities of Londrina and Tamarana, in Paraná	PR - October, 2027	March, 2031*	April, 2023	April, 2023	October, 2027	Part of AR61 (DF) – February, 2024*	December, 2029
São Paulo	-	March, 2031*	Countryside - April, 2023	April, 2023	October, 2027	-	December, 2029
Paraná (except the municipalities of Londrina and Tamarana)	October, 2027	September, 2022*	April, 2023	April, 2023	October, 2027	AR41, except Curitiba and Metropolitan Region - February, 2024* AR41, Curitiba and Metropolitan Region - July, 2031	December, 2029
Santa Catarina	October, 2027	September, 2023*	April, 2023	April, 2023	October, 2027	-	December, 2029
Municipality and region of Pelotas, in the State of Rio Grande do Sul	-	April, 2024*	-	April, 2023	October, 2027	-	December, 2029
Pernambuco	-	May, 2024*	-	April, 2023	October, 2027	Part of AR81-July, 2031	December, 2029
Ceará	-	November, 2023*	-	April, 2023	October, 2027	-	December, 2029
Paraíba	-	December, 2023*	-	April, 2023	October, 2027	-	December, 2029
Rio Grande do Norte	-	December, 2023*	-	April, 2023	October, 2027	-	December, 2029
Alagoas	-	December, 2023*	-	April, 2023	October, 2027	-	December, 2029
Piauí	-	March, 2024*	-	April, 2023	October, 2027	-	December, 2029
Minas Gerais (except the municipalities of the PGO sector 3 for 3G the radio frequencies and others)	-	April, 2028*	April, 2023	April, 2023	October, 2027	Part of AR31 - February, 2030*	December, 2029
Bahia and Sergipe	-	August, 2027*	-	April, 2023	October, 2027	-	December, 2029

*Agreements already renewed for 15 years, and therefore TIM is not entitled to a further renewal period.

** Only complementary areas in some specific States.

F-52

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

19. Borrowing and financing

These are recorded as financial liabilities measured at amortized cost, being represented by non-derivative financial liabilities that are not usually traded before maturity.

They are initially recognized at fair value, and subsequently measured based on the effective interest rate method. The appropriation of financial expenses based on the effective interest rate method is recorded in income, under financial expenses.

Description	Currency	Charges	Maturity	Dec/2019	Dec/2018
BNDES (1)	URTJLP	TJLP to TJLP + 2,52 % p.a.	Jul/22	240,008	578,312
BNDES (1)	UM143	SELIC + 2.52% p.a.	Jul/22	374,461	489,421
BNDES (PSI) (1)	R$	3.50% p.a.	Jan/21	18,071	56,804
KFW (2)	USD	Libor 6M+ 1.35% p.a.	Apr/19	-	43,420
KFW Finnvera (2)	USD	Libor 6M+ 0.75% p.a.	Jan/24 to Dec/25	330,217	378,595
Debentures (2)	R$	104.1% of the CDI	Jul/20	1,025,965	-
Cisco Capital (3)	USD	2.50% p.a.	Dec/20	40,366	116,465
Total				2,029,088	1,663,017
Current				(1,384,180)	(698,728)
Non-current				644,908	964,289

Guarantees:

(1) Guaranteed by the holding company TIM Participações and collateral of some receivables of the subsidiary.

(2) Guaranteed by the holding company TIM Participações.

(3) No guarantee.

F-53

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The financing arranged by the subsidiary with BNDES was raised for the purpose of expanding the mobile phone network. The agreements include covenants that require certain financial and non-financial indexes calculated every six months. The Company, TIM Participações, has complied with these financial ratios. The financial indexes are: (1) Shareholders' equity over total assets; (2) EBITDA over net financial expenses; (3) Total financial debt over EBITDA and (4) Short-term net financial debt over EBITDA.

In May 2018, the Company obtained a new line of credit in the amount of R$ 1,500 million from BNDES to finance investments in fixed assets (Capex) for the three-year period 2017-2019 with a term of use up to December 2019. As of March 2019, with the contracting of Finame Direto, the Company replaced the sub-credit "B" of this contract (equivalent to R$ 390 million). This new credit line in the amount of R$ 390 million with Finame, a company of the BNDES system, aimed at improving the conditions of one of the sub-credits, of equal value, contracted with BNDES in May 2018, both in terms of term and cost. The cost of this line is TLP (Long Term Interest Rate) plus interest of up to 1.44% per year and its availability extends until December 2020, without any reimbursement obligations.

The table below sets forth the status of the financing and credit facilities available:

Type	Currency	Date of opening	Term	Total amount	Undrawn balance	Amount used as at December 31, 2019	Amount expired until December 31, 2019
BNDES (1)	TJLP	May/18	Dec/19	1,090,000	-	-	1,090,000
BNDES (2)	TJLP	May/18	Dec/19	20,000	-	-	20,000
FINAME	TLP	Mar/19	Dec/20	390,000	390,000	-	-
Total R$				1,500,000	390,000	-	1,110,000

Purpose:

(i)	Support for the TIM investment plan for the years 2017 to 2019 including, but not limited to, the acquisition of Brazilian equipment.
(ii)	Investment in social projects involving the community.
(iii)	Investment solely toward the purchase of machinery and equipment, industrial systems and/or other components manufactured in the country.

The Investment Sustainment Program (“PSI”) financing lines, obtained from BNDES, refer to specific programs of this institution and have interest rates lower than those used in BNDES’ ordinary operations. The balance as at December 31, 2019, corresponding to the adjustment of the subsidy granted by the BNDES for all the PSI lines, was approximately R$42 million. This amount was recorded in “Deferred revenue” under the “Government subsidies” (Note 22) line and deferred for the useful life of the asset being financed and appropriated to income in “Subsidy income” (Note 28).

F-54

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

In January 2019, the Company, through its subsidiary, issued the first simple non-convertible debentures, unsecured, in the amount of R$ 1,000 million. The issue aimed at reinforcing the Company's working capital and will mature in July 2020, being remunerated at 104.10% CDI.

The subsidiary has swap transactions to protect itself fully against any devaluation of the Brazilian currency against the US Dollar in its borrowing and financing transactions. Nevertheless, this is not classified as hedge accounting (see note 36).

F-55

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The long-term portions of borrowing and financing as at December 31, 2019 mature as follows:

2021		305,171
2022		206,324
2023		33,434
2024		78,694
2025		21,285
		644,908

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

Borrowing fair value

In Brazil there is no consolidated long-term debt market with the characteristics of the BNDES facilities. In addition to the returns on long-term debt, the institutions take into account the social benefits of each project for which financing is granted. For the purposes of the fair value analysis, based on management's analyses any difference between nominal and fair value is immaterial in the context of the financial statements and debt of the company.

The amount of PSI credit lines is recorded at fair value as at the withdrawal date, and the fair value is calculated considering the CDI rate as at the withdrawal date.

Another transaction contracted with extremely specific features is the financing obtained from KFW Finnvera. This transaction is secured by Finnvera, a Finnish development agency. Given the features of this transaction, the Company believes that its fair value is equal to that shown in the balance sheet.

Regarding the funds raised with Cisco Capital, current market conditions do not indicate the existence of any factor that might lead to a fair value for these transactions different to that shown in the accounting records.

20. Indirect taxes, charges and contributions payable

	2019	2018

Indirect taxes, charges and contributions payable	466,603	453,941

Value added tax on goods and services - ICMS	377,105	361,558
ANATEL taxes and charges	22,009	21,320
ISS	61,673	59,764
Others	5,816	11,299

Current portion	(463,606)	(451,169)
Non-current portion	2,997	2,772

F-56

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

21. Direct taxes, charges and contributions payable

The current income tax and social contribution charges are calculated based on the tax laws enacted or substantially enacted up to the balance sheet date.

Brazilian tax legislation allows companies to choose quarterly or monthly payments of income tax and social contribution. From 2016 onward, the Company chose to make monthly payments of income tax and social contribution.

	2019	2018

Direct taxes, charges and contributions payable	508,615	542,213

Income tax and social contribution	346,097	372,467
PIS/COFINS	130,327	76,072
Other (*)	32,191	93,674

Current portion	(296,305)	(332,333)
Non-current portion	212,310	209,880

(*) The composition of this account refers mainly to the subsidiary’s adherence to the Tax Recovery Program – REFIS, as of 2009. For installment payment of debts due on federal taxes (PIS, COFINS, IR and CSLL) whose final maturity will be on October 31, 2024.

22. Deferred revenue

	2019	2018

Deferred revenues	1,109,112	1,313,467

Prepaid services to be provided (1)	186,310	301,621
Government grants (2)	42,159	63,731
Network swap (3)	2,713	11,449
Anticipated receipts	11,651	18,626
Deferred revenue for sale of towers (4)	843,017	897,112
Contractual liability (5)	23,262	20,928

Current portion	(281,930)	(406,867)
Non-current portion	827,182	906,600

(1) This refers to the reloading of voice and data credits not yet used by customers involving prepaid system services, which are appropriated to income when customers actually avail themselves of these services.

(2) Refers to the release of funds under the credit facility from the BNDES Investment Sustainment Program. The total sum of the subsidies granted by the BNDES through December 31, 2019, was R$203 million and the amount outstanding at December 31, 2019 and R$42,159 (63,731 at December 31, 2018). This amount is being amortized according to the useful life of the asset being financed and appropriated to the “Other income (expenses), net” (Note 28).

F-57

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(3) Refers mainly to the transfer of onerous contracts and reciprocal fiber optic infrastructure (Note 11).

(4) Refers to amounts to be appropriated from sales of towers (Note 15).

(5) Contracts with customers.

As at December 31, 2019, the balance of contractual assets and liabilities was as follows:

	2019	2018

Accounts receivable included in trade accounts receivable	2,413,865	2,189,931
Contractual asset (note 6)	15,142	130
Contractual liabilities	(23,262)	(20,928)

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

Summary of the main changes during the fiscal year:

	Contractual asset (liability)

	2019	2018
Balances as at January 1, 2019	(20,798)	(12,305)
Additions	1,845	(23,545)
Write-offs	10,833	15,052
Balances as at December 31, 2019	(8,120)	(20,798)

The estimated realization of the balances of contractual assets and liabilities is described below:

	2020	2021
Contractual asset (liability)	(5,953)	(2,167)

In accordance with paragraph 121 of IFRS 15, the Company is not presenting the effects of the information on contracts with customers that are effective for less than one year.

23. Provision for legal and administrative proceedings

The Company and its subsidiary are parties to legal and administrative proceedings in the civil, labor, tax and regulatory spheres which arise in the normal course of their business.

F-58

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The provision is set up at an amount deemed sufficient and adequate to cover losses and risks considered probable, based on an analysis by the Company’s legal consultants and by Management. Situations where losses are considered probable or possible are subject to registration and disclosure, respectively, for their adjusted amounts, and those where losses are considered remote are not disclosed.

The updated provision set up for legal and administrative proceedings is made up as follows:

	2019	2018

Provision for legal and administrative proceedings	840,637	849,408

Civil (a)	212,702	111,301
Labor (b)	261,837	435,438
Tax (c)	333,717	271,214
Regulatory (d)	32,381	31,455

The changes in the provision for legal and administrative proceedings can be summarized as follows:

	Dec/2018	Additions, net of reversals	Payments	Monetary adjustment	Dec/2019

	849,408	547,691	(715,203)	158,741	840,637

Civil (a)	111,301	348,012	(335,640)	89,028	212,701
Labor (b)	435,438	96,235	(301,971)	32,136	261,838
Tax (c)	271,214	103,354	(77,341)	36,490	333,717
Regulatory (d)	31,455	90	(251)	1,087	32,381

	Dec/2017	Additions, net of reversals	Payments	Monetary adjustment	Dec/2018

	528,320	551,191	(536,647)	306,544	849,408

Civil (a)	132,422	239,705	(324,803)	63,977	111,301
Labor (b)	184,311	225,864	(114,450)	139,713	435,438
Tax (c)	180,643	84,990	(96,346)	101,927	271,214
Regulatory (d)	30,944	632	(1,048)	927	31,455

The Company and its subsidiary are subject to various legal and administrative proceedings filed against them by consumers, suppliers, service providers, consumer protection agencies and public finance agencies, in connection with a number of issues that arise in the regular course of business of the entities. The main cases are summarized below:

F-59

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

a. Civil proceedings

a.1. Consumer lawsuits

The Company is party to lawsuits that refer to some claims that have been filed by consumers at the legal and administrative levels. These claims, which amount to R$135,290 (R$86,039 as at December 31, 2018) basically refer to alleged incorrect collections, contract cancellation, service quality, deficiencies and failures in equipment delivery, and unjustified inclusion in credit protection services.

a.2. Consumer protection agencies

TIM is a party to court and administrative lawsuits filed by the Public Prosecutor’s Office, Procon and other consumer protection agencies arising from consumer complaints that include: (i) alleged failure to provide network services; (ii) challenges related to the quality of client assistance; (iii) alleged violation of SAC Decree; (iv) alleged violation of agreements; (v) alleged false advertising; and (vi) discussion of the amounts charged by the Company to its customers related to loyalty fines in the case of handset theft. The amounts involved total R$31,221 (R$5,814 as at December 31, 2018).

a.3. Former trade partners

TIM is a defendant in lawsuits filed by former trade partners claiming, among others, amounts on the basis of alleged non-compliance with agreements. The amounts involved total R$12,812 (R$10,378 as at December 31, 2018).

a.4. Others

TIM is a defendant in other non-consumer lawsuits filed by different agents to challenge, among others: (i) the renewal of lease agreements; (ii) share subscription; (iii) indemnities; (iv) alleged non-compliance with agreements; and (v) collection suits. The amounts involved total R$27,039 (R$3,060 as at December 31, 2018).

a.5 Social, environmental and infrastructure

The Company is party to lawsuits involving various agents challenging several licensing aspects, such as environmental licensing and structure licensing (installation/operation). The amounts involved total R$498 (R$239 as at December 31, 2018).

a.6 ANATEL

The subsidiaries are parties to lawsuits filed against ANATEL, challenging: (i) a debit related to the collection of 2% on revenue from value added services (“VAS”) and interconnection; (ii) pro rata monetary restatement applied to the price proposal established in the call notice for use of 4G frequencies; and (iii) alleged non-compliance with service quality targets. The amounts involved are equivalent to R$1,340 (R$1,270 as at December 31, 2018).

F-60

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

b. Labor proceedings

Below is a summary of the key labor proceedings claims with a likelihood of loss considered probable:

Refer to various labor claims filed by former employees in relation to issues such as salary differences, parity, payment of variable compensation/commission, legal additions, overtime and other provision set forth in the period preceding the privatization process, and also claims filed by former employees of service providers who, taking advantage of the labor legislation currently in force, require the Company and/or its subsidiary to be held liable for labor obligations not complied with by the service providers contracted.

Of the total number of 2,408 labor claims as at December 31, 2019 (3,948 as at December 31, 2018) filed against the Company and its subsidiary, most of them relate to claims involving former employees of service providers, followed by claims filed by the Company’s own employees. The provision for these proceedings amounts to R$252,968, monetarily restated (R$426,570 as at December 31, 2018).

A significant portion of this provision refers to organizational restructuring procedures, of which the Company highlights the closing of the activities of the call centers, as well as proceedings related to TIM’s internal sites, which led to the termination of employee contracts. As at December 31, 2019, the provision for these proceedings totaled R$57,859, monetarily restated (R$27,981 as at December 31, 2018).

c. Tax processes

	2019	2018

Federal taxes	155,495	82,033
State taxes	93,790	103,546
Municipal taxes	8,227	1,713
TIM S.A. proceedings (purchase price allocation)	76,205	83,922
	333,717	271,214

The total provision recorded is substantially composed of the following proceedings, and the amounts indicated are estimated using the indices established by the federal government for taxes in arrears, being linked to the variations in the SELIC rate:

Federal taxes

The provision is substantially composed of the following proceedings:

The provision for TIM S.A. has been made for 37 cases challenging the taxes levied on CIDE, CPMF, CSLL and IRRF transactions, the voluntary reporting of the penalty regarding FUST payments and ancillary obligations. From these cases, the main amounts relate to court actions in which TIM intends to have the right not to pay the CPMF (a Federal contribution on financial movements) allegedly due to simultaneous purchase and sale transactions in foreign currency and changes to accountholders as a result of mergers, with updated provision amounts totaling R$9,560 (R$ R$9,335 as at December 31, 2018), as well as the amount corresponding to the fine and interest on FUST contribution for the year 2009, which does not include the benefits of voluntary reporting, for which the amount provided and updated is R$14,564 (R$14,060 as at December 31, 2018).

F-61

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

b.	The Company set up a provision for a lawsuit seeking to collect social security contribution withheld at a rate of 11%, to which payments made by the Company to other legal entities as compensation for sundry activities should have supposedly been subject. The amount provisioned and updated is R$37,977 (R$36,685 as at December 2018).

c.	Additionally, in the second quarter of 2019, the Company set up a provision for the FUST process alleging the unconstitutionality and illegality of FUST charges. Action for recognition of the right of not paying FUST and not including the revenues transferred as interconnection and EILD (Industrial Exploration of Dedicated Line) in the Company’s calculation base, as well as the right of not being charged retroactively for the differences due to non-compliance with ANATEL Precedent 7/2005, in the amount of R$58,116 (no corresponding amount on December 31, 2018).

State taxes

The provision is substantially composed of the following proceedings:

The provision for TIM S.A. supports forty-one lawsuits, among which are (i) the amounts involved in the assessments that question the reversal of ICMS debts, as well as the documentary support for proving credits appropriated by the Company, whose amounts provisioned, updated, are equivalent to R$ 23,558 (R$ 42,628 as of December 31, 2018), (ii) amounts supposedly not offered for taxation by the rendering of telecommunications services, which, updated, amount to R$ 5,037 (R$ 4,829 as of December 31, 2018), as well as (iii) collections due to alleged differences both of goods entries and exits, in a quantitative stock survey procedure, whose updated amounts amount to R$ 15,460 (provisioned process on 03/2019, with no correspondent as of December 31, 2018).

Municipal taxes

These include the amounts involved in assessments questioning the withholding and payment of the ISS-source on services provided by third parties with no employment relationship, as well as the payment of own ISS regarding co-billing services.

TIM S.A. PPA

Tax proceedings arising from the acquisition of TIM S.A. and included in its purchase price allocation process, totaling R$76,205 (R$83,922 as at December 31, 2018).

d. Regulatory processes

F-62

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

ANATEL has brought administrative proceedings against the Group for: (i) failure to meet certain quality service indicators; (ii) defaults on certain obligations assumed under the Instruments of Authorization; and (iii) non-compliance with the regulations of SMP and STFC, among others.

As at December 31, 2019, the amount classified as a probable risk related to Procedures to Verify Breaches of Obligations (“PADOs”), after monetary adjustments, amounted to R$32,381 (R$31,455 as at December 31, 2018).

e. Legal and administrative processes involving possible losses

Civil, labor, tax and regulatory actions have been filed against the Company and its subsidiary involving a risk of loss classified as possible by the Company’s legal advisors and the Management. No provision has been set up for these legal and administrative proceedings, and no materially adverse effects are expected on the financial statements, as shown below:


	2019	2018

	18,395,727	18,734,644

Civil (e.1)	1,032,637	1,046,521
Labor and social security (e.2)	459,020	523,236
Tax (e.3)	16,196,077	16,530,061
Regulatory (e.4)	707,993	634,826

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

The main actions where the risk of loss is classified as possible are described below:

e.1. Civil

	2019	2018
Actions filed by consumers (e.1.1)	374,860	405,635
ANATEL (e.1.2)	220,526	207,657
Consumer Protection Agencies (e.1.3)	32,847	84,231
Former trade partners (e.1.4)	180,226	173,213
Social and environmental, and infrastructure (e.1.5)	125,201	71,574
Other (e1.6)	98,977	104,211
	1,032,637	1,046,521

e.1.1. Actions filed by consumers

These actions refer particularly to alleged incorrect billing, contract cancellation, service quality, deficiencies and failures in equipment delivery, and unjustified inclusion in bad debtors’ lists.

e.1.2. ANATEL

F-63

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The Company is party to lawsuits filed against ANATEL, for the following reasons: (i) debit regarding the collection of 2% on revenue obtained from VAS and interconnection; (ii) pro rata monetary restatement applied to the price proposal established in the call notice for the use of 4G frequencies; and (iii) alleged non-compliance with service quality targets.

e.1.3. Consumer Protection Agencies

The Company is a party to court and administrative lawsuits filed by the Public Prosecutor’s Office, Procon and other consumer protection agencies arising from consumer-related complaints that include: (i) alleged failure to provide network services; (ii) alleged failure to deliver devices; (iii) alleged non-compliance with state legislation; (iv) contract model and alleged incorrect charging for VAS; (v) alleged violation of SAC Decrees; (vi) alleged violation of agreements; and (vii) blocking of data.

e.1.4. Former trade partners

The Company is a defendant in actions filed by several former trade partners who are claiming, among other items, amounts arising from alleged non-compliance with agreements.

e.1.5. Social, environmental and infrastructure

The Company is party to lawsuits involving different parties that challenge aspects related to: (1) environmental licensing and structure licensing (installation/operations), and (2) (i) electromagnetic radiation emitted by the telecom structures, (ii) renewal of leasing land agreements to install sites, (iii) eviction from land leased to install sites, and (iv) presentation of registration data, among others.

e.1.6 Others

The Company is a party to other lawsuits of an essentially non-consumer-related nature filed by various agents other than those described above, in which the discussions involve: (i) renewals of lease agreements, (ii) share subscription lawsuits, (iii) compensation lawsuits, (iv) alleged breach of contract, and (v) lawsuits involving charges.

e.2. Labor claims

e.2.1. Social security

The Company's subsidiary received a Debit Assessment Notice, related to the alleged irregularity in the payment of social security contributions related to the payment of Profit Sharing, in the amount of R$ 538, adjusted (R$ 538 on December 31, 2018) and also suffered a tax assessment related to alleged social security contributions levied on hiring bonus; unadjusted bonus; consideration for self-employed activities and sales incentives in the updated amount of R$ 9.693 at December 31, 2019.

The Company's subsidiary received Tax Underpayment Assessments regarding alleged irregularity related to the payment of social security contributions levied on profit sharing; failure to pay Management’s fees and failure properly to fill out the FGTS – GFIP tax form, and an erroneous GFIP declaration in the

F-64

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

updated amount of R$1,559 (R$1,430 as at December 31, 2018).

e.2.2. Labor

There are 3,976 labor claims at December 31, 2019 (4,654 at December 31, 2018) filed against the Company and its subsidiary, related to claims involving former employees and service providers in the amount of R$459,020 updated (R$ 523,236 at December 31, 2018).

A significant portion of the existing contingency relates to organizational restructuring processes, of which the closure of the activities of the Customer Relationship Centers (call center) stands out, as well as processes related to the company's internal sites, which resulted in the dismissal of employees. In addition to these processes, there are those carried out by third party service providers with requests for employment with the company's, whose amounts total R$ 14,349 updated (R$ 16,709 as of December 31, 2018).

It should also be pointed out that there is a group of labor claims, particularly in São Paulo and Rio de Janeiro, from former employees of Gazeta Mercantil, Jornal do Brasil and JB Editora requesting in court the inclusion in the liability center of Holdco, which before the merger with TIM Participações, belonged to the Grupo Econômico Docas, of which Gazeta Mercantil and Jornal do Brasil are part.

The other amounts are related to labor lawsuits filed by former employees and third companies.

e.3. Tax


	2019	2018
Federal taxes (e.3.1)	4,279,570	3,952,125
State taxes (e.3.2)	8,221,808	8,904,916
Municipal taxes (e.3.3)	703,132	693,616
FUST, FUNTTEL and EBC (e.3.4)	2,991,567	2,979,404
	16,196,077	16,530,061

The amounts are adjusted based on an estimate of the SELIC rate. The historical amount involved is equivalent to R$11,549,274 (R$ 11,662,216 as of December 31, 2018).

Of the total amount of tax litigations, R$3.474.714 relates to income taxes contingencies, which have been assessed by Management and based on its internal and external experts, it is not likely that the Company’s treatments will not be accepted by the Brazilian tax authority.

F-65

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

e.3.1. Federal taxes

Assessment against the TIM Group for federal taxes amounted to R$4,279,570 as at December 31, 2019, (R$3,952,125 as at December 31, 2018). Of this total, the following issues stand out:

(i)	Alleged errors in the use of tax credits due to a reverse merger, the amortization of goodwill paid on the acquisition of mobile phone companies, deduction of goodwill amortization expenses, exclusion of goodwill reversal, other effects and the disallowance of offsetting and estimated deductions paid, allegedly improper use of SUDENE benefits caused by a lack of formalization of these benefits in the Federal Revenue Department (“RFB”) and failure to pay the estimated IRPJ and CSLL amounts. The amount involved is R$2,672,754 (R$2,543,851 as at December 31, 2018).

(ii)	Method of offsetting tax losses and negative bases. The amount involved is R$203,302 (R$198,175 as at December 31, 2018).

(iii)	Collection of CSLL on monetary variations for swap transactions, recorded on a cash basis. The amount involved is R$66,164 (R$64,537 as at December 31, 2018).

(iv)	Payment of IRRF on revenue from overseas residents, including those remitted for international roaming and payments to unidentified beneficiaries, as well as the collection of CIDE on royalties remitted overseas, including remittances for international roaming. The amount involved for the subsidiary is R$256,833 (R$296,589 as at December 31, 2018).

(v)	Charging of IRPJ, PIS/COFINS and CSLL debts for the non-approval or partial approval of offsetting carried out by the Company using credits from withholding tax on financial investments and negative IRPJ balance. The amount involved is R$427,233 (R$412,715 as at December 31, 2018).

e.3.2. State taxes

Assessment against the Company for state taxes amounting as at December 31, 2019 to R$8,221,808 (R$8,904,916 as at December 31, 2018). Of the total amount, the following issues stand out:

(i)	Failure to include unconditional discounts offered to customers in the ICMS calculation base, and a fine for alleged failure to comply with related ancillary obligations, including failure to submit register 60i of the SINTEGRA file. The amount involved is R$1,053,411 (R$1,344,288 as at December 31, 2018).

(ii)	Use of tax benefits under the Program for Promoting the Integrated and Sustainable Economic Development of the Federal District granted by the tax authority itself, but subsequently declared an unconstitutional and alleged incorrect crediting of ICMS on interstate purchases of goods with tax benefits granted in the state of origin. The amount involved is R$887,67 (R$1,110,827 as at December 31, 2018).

(iii)	Credit reversal and late use of credits for purchases of fixed assets. The amount involved for its subsidiary is R$731,864 (R$767,142 as at December 31, 2018).

F-66

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(iv)	ICMS credits booked and debits reversed, as well as the identification and supporting documentation for amounts and information passed to customer bills, such as tax rates and credit granted as prepayment of future recharges (special credit), as well as credits related to transactions involving tax substitution, exempt and non-taxable transactions. As at December 31, 2019, the amount involved for the subsidiary was R$3,284,473 (R$3,340,448 as at December 31, 2018).

(v)	The use of credit to purchase electricity for the companies’ production processes. The amount involved is R$131,057 (R$140,368 as at December 31, 2017).

(vi)	Alleged conflict between ancillary obligation data and the payment of the tax, and specific questioning regarding the fine charged due to non-compliance with ancillary obligations. The amount involved is R$138,684 (R$116,880 as at December 31, 2018).

(vii)	Alleged failure to pay ICMS arising from debts reversed regarding prepaid services, incorrect ICMS credits regarding outgoing goods allegedly benefiting from a reduction in the calculation base, as well as an alleged failure to include VAS of the ICMS calculation base. The amount involved is R$198,505 (R$192,074 as at December 31, 2018).

(viii)	Credits booked for the return of cell phones on free lease. The amount involved is R$180,920 (R$177,128 as at December 31, 2018).

(ix)	Collection of ICMS tax on subscription services and the alleged failure to include this in the ICMS calculation base due to its nature. The amount involved is R$249,659 (R$139,758 as at December 31, 2018).

e.3.3. Municipal taxes

The total assessment against the TIM Group for municipal taxes was R$703,132 as at December 31, 2019, (R$693,616 as at December 31, 2018). Of this amount, the following issues stand out:

a.	Payment of ISS and of a punitive fine for failure to pay the alleged tax on various revenue accounts of the Company. The amount involved is R$147,572 (R$142,355 as at December 31, 2018).

b.	Collection of ISS on import of services. The amount involved is R$300,669 (R$283,620 as at December 31, 2018).

c.	Constitutionality of the collection of the TFF by municipal authorities in several locations. The amount involved is R$120,503 (R$118,114 as at December 31, 2018).

e.3.4. FUST and FUNTTEL

The amount assessed against the TIM Group for contributions to FUST and FUNTTEL is R$2,991,567 (R$2,979,404 as at December 31, 2018). The principal discussion involves the payment of the contributions to FUST and FUNTTEL (the Telecommunications Technical Development Fund) starting from the issue by ANATEL of Ruling No. 07/2005, relating primarily to the payment of the FUST and FUNTTEL contributions on interconnection revenue earned by mobile telecommunications service providers, from the effective date of Law N^o. 9.998/2000.

F-67

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

e.4. Regulatory issues

ANATEL has filed administrative proceedings against the subsidiary for: (i) not complying with certain quality indicators, (ii) defaulting on other obligations under Instruments of Authorization, and (iii) not complying with SMP and STFC regulations, among other items.

As at December 31, 2019, the amount stated for Breach of Obligation procedures (locally PADOs), considering the monetary restatement that was considered possible loss was R$707,993 (R$634,826 as at December 31, 2018). The variations mainly resulted from the handling of the PADOs included in the Consent Decree - “TAC” negotiated with ANATEL and new revenue recorded in the year 2019.

On August 22nd, 2019, Anatel's Board of Directors unanimously approved TIM's Conduct Adjustment Term, which was under negotiation since June 2018. The agreement covers a sanction reference value of R$ 627 million. TIM's commitment foresees improvement actions in three pillars - customer experience, quality and infrastructure - through initiatives associated with improvements in the licensing process of stations, efficient use of numbering resources, evolution of digital caring channels, reducing complaint rates, repairing users and strengthening transport and access networks. In addition, it includes an additional commitment to bring mobile broadband through the 4G network to 366 municipalities with less than 30,000 inhabitants reaching over 3.4 million people. The new infrastructure will be implemented in three years - more than 80% in the first two years –with the sharing regime with the other providers being guaranteed by the Company.

On obtaining an extension of the authorization to use radio frequencies associated with SMP, the subsidiary TIM S.A. incurs contractual charges on net revenue from service plans sold under each authorization. However, ANATEL has included interconnection revenue in the calculation base for these charges since 2011, and revenue from VAS since 2012. In the Company's opinion, this revenue should not be included because it is not expressly stipulated in the original Instruments of Authorization. Therefore, the charges received are being discussed at the administrative and/or legal levels.

24. Shareholders’ equity

a. Capital stock

The capital is stated at the amount effectively raised from shareholders, net of the costs directly linked to the issuance process.

When a company within the Group purchases the Company’s shares, intending to hold them as treasury shares, the amount paid, including any directly attributable additional costs, is deducted from the Company’s shareholders’ equity until the shares are cancelled or reissued. When these shares are reissued subsequently, any amount received, net of additional costs directly attributable to the transaction, is included in shareholders’ equity. As at December 31, 2019, the Company held 210,527 treasury shares (784,317 for 2018) with a view to fulfilling the stock option plan (Note 25).

The Company is authorized to increase its capital upon a resolution by the Board of Directors, without amending the bylaws, up to the limit of 4,450,000,000 common shares.

The subscribed and paid up capital is represented as follows:

F-68

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)


	2019	2018
Net value paid up	9,866,298	9,866,298

Value paid up	9,913,415	9,913,415
(-) Funding costs	(47,117)	(47,117)

Number of common shares	2,421,032,479	2,421,032,479

b. Capital reserves

The use of capital reserves is in accordance with the provisions of Article 200 of Law No. 6.404/76, which refers to corporate entities. These reserves consist of:

	2019	2018

	410,650	412,091

Special goodwill reserve	380,560	380,560
Stock options	30,090	31,531

b.1 Special goodwill reserve

The special goodwill reserve arose from the following transactions:

(i) Takeover of the former subsidiaries TIM Sul and TIM NE - acquisition of minority shares

In 2005, the Company acquired all the shares held by the minority shareholders of TIM Sul S.A. and TIM Nordeste Telecomunicações S.A. This acquisition took place by issuing new shares of TIM Participações S.A., converting those companies into full subsidiaries. At that time, this transaction was recorded at the book value of the shares, no goodwill being recorded arising from the difference between the market value and the shares negotiated.

When first adopting IFRS, the Company availed itself of the exemption that allows a subsidiary, when it adopts international accounting practices subsequent to its Parent Company having adopted IFRS, to consider the balances previously reported to the Parent Company for consolidation purposes. In the balance sheet of the transition to IFRS, the Company recorded the acquisition price based on the market value of the shares of TIM Participações S.A. at that time, recording goodwill amounting to R$157,556.

(ii) Acquisition of the shares of Holdco - purchase of TIM S.A (Intelig)

As at December 30, 2009, the Special General Meeting of TIM Participações approved the takeover of Holdco, a company that held 100% of the equity of TIM S.A, by TIM Participações. As a result of this transaction, the Company issued 127,288,023 shares.

Based on the former Brazilian accounting principles (“BR GAAP”), the acquisition was recorded at the net book value of the assets acquired on the base date of November 30, 2009.

F-69

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

When IFRS was first adopted, the acquisition was recorded on the base date of December 31, 2009, taking into account the market value of the common and preferred shares of TIM Participações as at December 30, 2009, amounting to R$739,729. The difference between this amount and the book value recorded under the former BR GAAP (R$516,725) created goodwill on capital reserves of R$223,004.

b.2 Stock options

The balances recorded in these items represent the expenses of the Company and its subsidiary for the share options granted to their employees (Note 25).

In the year ended December 31, 2019 and the year ended 2018, the Company sold 668,367 and 1,194,576 common shares, respectively, to the beneficiaries of the Stock Option Plan (Note 25). These shares were in the Company's treasury when the options were exercised at the average book value of R$10.86 and R$10.34, respectively. Additionally, through the Share Buyback Program launched in October 2017, the Company acquired 115,949 shares in 2019 (377,052 in 2018) at the price of R$15.22 and R$11.64, respectively, equivalent to R$ 3,204 in 2019 (R$ 4,389 in 2018). As a result, the net effect on the repurchase transaction of treasury shares was R$5,319 (R$7,964 in 2018).

c. Profit reserves

c.1 Legal reserve

This refers to 5% of the income for every year ended December 31, until the legal reserve equals 20% of the capital stock, excluding, as from 2018, the balance set aside for the tax incentive reserve. Also, the Company is authorized to cease setting up a legal reserve when, together with the capital reserves, it exceeds 30% of the capital stock.

This reserve can be used only for capital increases or the offsetting of accumulated losses.

c.2 Statutory reserve for expansion

This reserve is set up based on paragraph 2, Article 46 of the Company’s bylaws and is intended for the expansion of the corporate business.

The balance of profit that is not compulsorily allocated to other reserves and that is not allocated for the payment of dividends, is allocated to this reserve, which may not exceed 80% of the capital. Once this limit is reached, it is incumbent upon the shareholders’ meeting to decide on the balance, either distributing this to shareholders or increasing the capital.

In December 2019, the Reserve for Expansion reached the limit defined in the Company's bylaws. Therefore, the next meeting will propose a capital increase via capitalization of the expansion reserve in the amount of R$ 1,644,013. This increase may be made without the issuance of new shares in proportion to the rights of shareholders.

F-70

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

c.3 Tax benefit reserve

The subsidiary was granted tax benefits that provide for restrictions on the distribution of profits by this subsidiary. According to the legislation establishing these tax benefits, the amount of taxes waived as a result of exemptions and reductions in the tax charge may not be distributed to shareholders and must be registered as a tax incentive reserve for the legal entity. This reserve should only be used for offsetting the losses or capital increases. At December 31, 2019, the accumulated amount of benefits enjoyed by the subsidiary was R$ 1,612,019 (R$1,417,858 at December 31, 2018).

This tax benefit basically corresponds to a reduction in the IRPJ on income from exploration, recorded by the units entitled to this benefit. The subsidiary operates in the area of the former Superintendence for Development of the Amazon (“SUDENE/SUDAM”), and the tax benefit reports are granted by the state, for a period of ten years, subject to extension.

F-71

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

d. Dividends

Dividends are calculated in accordance with the bylaws and Brazilian Corporate Legislation.

As stated in the most recent bylaws approved on April 14, 2016, the Company must distribute a mandatory dividend for each business year ended December 31, provided that funds are available for distribution, equivalent to 25% of the revised profit.

As provided for in the Company’s bylaws, dividends not claimed within three years will be reversed to the Company.

As at December 31, 2019, dividends and interest on equity were calculated as shown below:

	2019	2018

Net income for the year	3,622,127	2,545,101
(-) Tax incentives not to be distributed	(194,161)	(146,455)
(-) Legal reserve constitution	(171,398)	(119,932)
Revised profit	3,256,568	2,278,714

Minimum dividends calculated considering 25% of the revised profit	814,142	569,679

Breakdown of dividends payable and interest on equity:
Interest on shareholders’ equity	995,438	849,994
Total dividends and interest on shareholders’ equity distributed and proposed	995,438	849,994
IRRF on interest on shareholders’ equity	(149,316)	(125,757)
Total dividends and interest on shareholders’ equity, net	846,122	724,237

Dividends per share (amount in reais), net of IRRF	0.35	0.30

Interest on shareholders’ equity paid and/or payable is recorded against financial expenses which, for the purposes of presentation of the financial statements, are reclassified and disclosed in the allocation of net income for the year/period, in changes in shareholders’ equity. Interest on shareholders’ equity received and/or receivable is recorded against financial revenue, with an impact on the equity accounting income. For disclosure purposes, the impacts on income are eliminated, and a reduction is recorded in the investment balance. As of December 31, 2019, the amount provisioned was R$995,438, of which R$ 313,600 was paid over the year and the remaining balance was recorded in the Company's current liabilities and paid in January 2020.

Dividends not claimed – As provided for in the Brazilian Corporate Law, dividends and interest on shareholders’ equity that are declared but not claimed by shareholders for a period of three years are reversed to the shareholders’ equity according to the statute of limitations.

Regarding the statement of cash flow, interest on shareholders’ equity and dividends paid to shareholders were classified as “financing activities”.

F-72

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

25. Long-term incentive plan

2011-2013 Plan, 2014-2016 Plan and 2018-2020 Plan

At the annual meeting on August 5, 2011, April 10, 2014 and April 19, 2018, the shareholders of TIM Participações S.A. approved the long-term incentive plans, respectively the “2011-2013 Plan”, the “2014-2016 Plan” and the "2018-2020 Plan" for the senior Management and key executives of the Company and its subsidiary.

The 2011-2013 and 2014-2016 Plans involve granting options, while the 2018-2020 Plan provides for the granting of shares.

The exercise of options under the 2011-2013 Plan depends on the achievement of specific performance targets, while the exercise of options of the 2014-2016 Plan is not subject to this condition. The Exercise Price is calculated with an upward or downward adjustment to the Base Share Price, according to share performance, as provided for in each Plan.

The 2018-2020 Plan, in turn, proposes granting to the participants shares issued by the Company, subject to certain time and/or performance conditions (attainment of specific targets). The number of shares may vary up or down depending on performance and possible declarations of dividends, considering the criteria specified for each Grant.

Share options of the 2011-2013 and the 2014-2016 Plans are effective for six years, and TIM Participações has no legal or informal obligation to repurchase or settle the options in cash. In the case of the 2018-2020 Plan, the effectiveness period is the same as the vesting period of three years. The 2018-2020 Plan, in turn, besides allowing for the transfer of shares, also provides for the possibility of making payments to the participants of the equivalent cash value.

The total amount of the expense is recognized during the vesting period: that is, the period during which specific vesting conditions must be met. On the date of each balance sheet, the Group reviews its estimates for the number of options that will vest, considering vesting conditions not related to the market and time with the company.

It should also be taken into account that in 2017 there were no new grants, only the calculations of the vesting period from past grants.

The variations in the quantity of shares/options are presented below:

F-73

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

Date of grant	Share options granted	Maturity Date	Exercise price	Balance at beginning of 2019 financial year	Granted in the period	Exercised in the period	Forfeited in the period	Failing due in the period	Balance at beginning of 2019 financial year

2018-2020 Plan - 2ª Grant	930,662	Jul/22	R$ 11.28	-	930,662	-	(33,418)	-	897,244
2018-2020 Plan – 1^st Grant	849,932	Apr/21	R$ 14.41	466,514	-	(115,949)	(97,228)	-	253,337
2014-2016 Plan – 3^rd Grant	3,922,204	Nov/22	R$ 8.10	895,522	-	(476,182)	-	-	419,340
2014-2016 Plan – 2^nd Grant	3,355,229	Oct/21	R$ 8.45	292,523	-	(159,675)	-	-	132,848
2014-2016 Plan – 1^st Grant	1,687,686	Sep/20	R$ 13.42	531,972	-	(32,511)	(121,175)	-	378,286
2011-2013 Plan – 3^rd Grant	3,072,418	Jul/19	R$ 8.13	543,583	-	-	-	(543,583)	-
2011-2013 Plan – 2^nd Grant	2,661,752	Sep/18	R$ 8.96	-	-	-	-	-	-
2011-2013 Plan – 1^st Grant	2,833,595	Aug/17	R$ 8.84	-	-	-	-	-	-
Total	19,313,478			2,730,114	930,662	(784,317)	(251,821)	(543,583)	2,081,055
Average weighted price for the period			R$ 11.23

Date of grant	Share options granted	Maturity Date	Exercise price	Balance at beginning of 2018 financial year	Granted in the period	Exercised in the period	Forfeited in the period	Failing due in the period	Balance at beginning of 2018 financial year

2018-2020 Plan – 1^st Grant	849,932	May/20	14.41	-	849,932		(383,418)	-	466,514
2014-2016 Plan – 3^rd Grant	3,922,204	Nov/22	8.10	2,684,284		(510,884)	(1,277,878)	-	895,522
2014-2016 Plan – 2^nd Grant	3,355,229	Oct/21	8.45	1,240,740		(656,268)	(291,949)	-	292,523
2014-2016 Plan – 1^st Grant	1,687,686	Sep/20	13.42	658,720		(27,424)	(99,324)	-	531,972
2011-2013 Plan – 3^rd Grant	3,072,418	Jul/19	8.13	694,936			(151,353)	-	543,583
2014-2016 Plan – 2^nd Grant	2,661,752	Sep/18	8.96	194,756				(194,756)	‐
2014-2016 Plan – 1^st Grant	2,833,595	Aug/17	8.84	-				-	‐
Total	18,382,816			5,473,436	849,932	(1,194,576)	(2,203,922)	(194,756)	2,730,114
Average weighted price for the period			10.26

F-74

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

Below are the significant data included in the model:

Date of grant	Weighted average base price of shares during the vesting period of the grant	Volatility	Expected useful life of the option	Annual interest rate without risk
2011 Grant	R$ 8.84	51.73% p.a	6 years	11.94% p.a
2012 Grant	R$ 8.96	50.46% p.a	6 years	8.89% p.a
2013 Grant	R$ 8.13	48.45% p.a	6 years	10.66% p.a
2014 Grant	R$ 13.42	44.60% p.a	6 years	10.66% p.a
2015 Grant	R$ 8.45	35.50% p.a	6 years	16.10% p.a
2016 Grant	R$ 8.10	36.70% p.a	6 years	11.73% p.a
2018 Grant	R$ 14.41	NA	3 years	NA
2019 Grant	R$ 11.28	NA	3 years	NA

The Base Share Price was calculated using the weighted prices of the shares of TIM Participações, during the following periods:

2011-2013 Plan – 1^st Grant - Volume traded and the trading price of the shares in TIM Participações in the 30 day period prior to July 20, 2011 (the date when the Board of Directors of TIM Participações approved the benefit).
2011-2013 Plan– 2^nd Grant - Volume traded and the trading price of TIM Participações shares during the period July 1, 2012 to August 31, 2012.
2011-2013 Plan– 3^rd Grant - Volume traded and the trading price of TIM Participações shares during the 30 day period preceding July 20, 2013.
2014-2016 Plan– 1^st Grant - Volume traded and the trading price of TIM Participações shares during the 30 day period preceding the date determined by the Board of Directors of TIM Participações (September 29, 2014).
2014-2016 Plan– 2^nd Grant - Volume traded and the trading price of TIM Participações shares during the 30 day period preceding the date determined by the Board of Directors of TIM Participações (September 29, 2015).
2014-2016 Plan– 3^rd Grant - Volume traded and the trading price of TIM Participações shares during the 30 day period preceding the date determined by the Board of Directors (September 29, 2016).
2018-2020 Plan – 1^st Grant - Volume traded and the trading price of TIM Participações shares during the period from March 1, 2018 to March 31, 2018.
2018-2020 Plan – 2^nd Grant - Volume traded and the trading price of Tim Participações shares during the period from June 1, 2019 to June 30, 2019.

F-75

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The Company recognizes the impact of review of its initial estimates, if any, in the statement of income, with a contra-entry in shareholders’ equity. As at December 31, 2019 the expenses related to said long-term benefit plans totaled R$2,359 (R$ 4,291 as at December 31, 2018).

26. 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, 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.

Revenue from product sales

Revenues from product sales (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 product sold.

Contract Identification

The Company reviews all current 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 new accounting pronouncement.

Identification of performance obligation

F-76

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

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

(i) sale of equipment; and

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

Therefore, the Company began to recognize revenues when, or as, the performance obligation is met when transferring the good or service promised to the customer; the asset is considered transferred when or as the customer obtains control of this 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, the Company is required to perform the discount allocation and recognize revenues related to each performance obligation based on their standalone selling prices.

Prior to the adoption of the standard, the Company recognized revenue from each element identified based on its contractual price, with the discount on the sale of handsets being allocated completely to the price of the handset.

As a consequence of the adoption of the new standard, an additional portion of the revenue was allocated to revenues from sale of handsets at the beginning of the contract, representing an increase in revenues from the sale of equipment in relation to previously adopted accounting practice. The difference between the amount of revenue and the amount of equipment sales revenue at the beginning of the contract was recognized at the time each as a contractual asset, allocated to service revenue along the contract period.

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 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.


	2019	2018	2017

Net operational revenue	17,377,194	16,981,329	16,233,959

Gross operating revenue	25,182,831	24,232,404	22,611,074

Service revenue	23,820,343	23,065,648	21,433,515
Service revenue – Mobile	22,145,033	21,531,779	20,147,585
Service revenue – Landline	1,675,310	1,533,869	1,285,930

Goods sold	1,362,488	1,166,756	1,177,559

Deductions from gross revenue	(7,805,637)	(7,251,075)	(6,377,115)
Taxes	(4,939,980)	(5,163,797)	(5,027,406))
Discounts given	(2,843,670)	(2,073,892)	(1,329,600)
Returns and other	(21,987)	(13,386)	(20,109)

F-77

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

27. Operating costs and expenses

	2019				2018
	Cost of services provided and goods sold	Selling expenses	General and administrative expenses	Total	Cost of services provided and goods sold (*)	Selling expenses	General and administrative expenses	Total

	(7,433,731)	(4,986,289)	(1,717,859)	(14,137,879)	(7,701,418)	(4,970,780)	(1,608,319)	(14,280,517)

Personnel	(53,392)	(624,353)	(392,984)	(1,070,729)	(36,514)	(637,177)	(357,878)	(1,031,569)
Third-party services	(569,242)	(2,041,646)	(512,643)	(3,123,531)	(518,762)	(2,169,624)	(451,990)	(3,140,376)
Interconnection and means of connection	(1,419,464)	‐	‐	(1,419,464)	(2,513,176)	‐	‐	(2,513,176)
Depreciation and amortization	(4,132,223)	(256,898)	(739,860)	(5,128,981)	(3,119,954)	(162,804)	(671,562)	(3,954,320)
Taxes, fees and contributions	(32,120)	(817,369)	(18,846)	(868,335)	(31,754)	(866,197)	(18,333)	(916,284)
Rent and insurance	(291,302)	(121,795)	(20,590)	(433,687)	(591,226)	(146,877)	(67,387)	(805,490)
Cost of goods sold	(931,818)	‐	‐	(931,818)	(883,912)	‐	‐	(883,912)
Publicity and advertising	‐	(355,234)	‐	(355,234)	‐	(421,588)	‐	(421,588)
Losses on doubtful accounts	‐	(748,291)	‐	(748,291)	‐	(544,881)	‐	(544,881)
Other	(4,170)	(20,703)	(32,936)	(57,809)	(6,120)	(21,632)	(41,169)	(68,921)

	2017
	Cost of services provided and goods sold	Selling expenses	General and administrative expenses	Total

	(8,002,077)	(4,575,177)	(1,424,643)	(14,001,897)

Personnel	(48,802)	(602,578)	(305,036)	(956,416)
Third-party services	(544,036)	(2,049,994)	(429,597)	(3,023,627)
Interconnection and means of connection	(2,632,593)	-	-	(2,632,593)
Depreciation and amortization	(3,280,524)	(162,020)	(571,126)	(4,013,670)
Taxes, fees and contributions	(36,625)	(919,018)	(11,963)	(967,606)
Rent and insurance	(609,595)	(92,363)	(62,954)	(764,912)
Cost of goods sold	(846,839)	-	-	(846,839)
Publicity and advertising	-	(410,982)	-	(410,982)
Losses on doubtful accounts	-	(316,387)	-	(316,387)
Other	(3,063)	(21,835)	(43,967)	(68,865)

F-78

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The Company contribute to public and private pension insurance plans in a mandatory, contractual or voluntary manner during the time when employees are working at the Company. These plans do not originate any additional obligation for the Company. When an employee leaves the Company during the period required for entitlement to receive the contributions made by the sponsors, the amounts to which the employee ceased to be entitled, and that may represent a reduction in future contributions of the Company to active employees, or a refund in cash of these amounts, are recorded in assets.

28. Other income (expenses), net

	2019	2018	2017
Income
Subsidy income, net	21,572	25,305	28,722
Fines on telecommunications services	50,499	44,411	41,699
Revenue from disposal of assets	2,214	1,708	2,865
Other income (a)	1,878,558	282,041	171,273
	1,952,843	353,465	244,559
Expenses
FUST/FUNTTEL (b)	(137,169)	(143,167)	(140,878)
Taxes, fees and contributions	(4,024)	(4,092)	(4,466)
Provision for legal and administrative proceedings, net of reversal
	(466,460)	(452,463)	(366,476)
Expenses from disposal of assets	(7,055)	(4,424)	(6,618)
Other expenses	(62,593)	(32,608)	(24,831)
	(677,301)	(636,754)	(543,269)

Other revenues (expenses), net	1,275,542	(283,289)	(298,710)

(a) The variation in the period refers to: (i) credits from legal proceedings held by the Company with a final decision in favor of the Company in higher courts in 2019, which discussed the exclusion of ICMS from the calculation base of PIS and COFINS contributions. The amount of R$ 1,795 million was recorded under other revenues in June 2019 (Note 9) and (ii) amortization of deferred revenue from the sale of the towers (Note 15).

(b) Expenses incurred with contributions on several telecommunications revenue amounts due to ANATEL, according to the legislation in force.

29. Financial income

	2019	2018	2017

Financial income	1,430,171	412,733	512,565
Interest on financial investments	88,224	119,548	369,517
Interest received from clients	37,233	36,793	38,227
Swap interest	15,536	17,001	32,300
Interest on leasing	20,528	25,664	22,709
Monetary adjustments (i)	1,263,793	207,191	39,694
Foreign exchange variation	4,857	6,536	10,118

(i)	Includes the amount of R$1,228 million regarding the adjustment of credits from a legal proceeding of TIM Celular S.A. (absorbed by TIM S.A.) on the exclusion of ICMS from PIS and COFINS tax bases (Note 9).

F-79

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

30. Financial expenses

	2019	2018	2017
Financial expenses	(1,408,053)	(951,439)	(1,009,653)
Interest on borrowing and financing	(116,735)	(96,682)	(211,108)
Interest on taxes and fees	(28,396)	(15,409)	(5,712)
Swap interest	(24,604)	(32,424)	(85,362)
Interest on leasing	(821,463)	(266,328)	(257,305)
Monetary adjustment ⁽²⁾	(191,309)	(340,175)	(278,272)
Discounted granted	(36,047)	(38,858)	(52,683)
Other expenses ⁽¹⁾	(189,499)	(161,563)	(119,211)

⁽¹⁾Includes PIS/COFINS amounts on financial events, mainly related to Interest on Shareholders Equity (JSCP).

⁽²⁾Monetary adjustment relates mainly to provision for legal and administrative proceedings.

31. Foreign exchange variations, net

	2019	2018	2017
Revenue
Borrowing and financing	22,494	1,409	287,777
Suppliers	9,004	6,844	4,124
Swap	40,742	75,340	130,971
Others	15,952	13,937	7,146
	88,192	97,530	430,018
Expenses
Borrowing and financing	(40,715)	(75,298)	(271,286)
Suppliers	(13,201)	(11,925)	(6,819)
Swap	(22,493)	(1,409)	(147,356)
Others	(12,691)	(7,525)	(5,305)
	(89,100)	(96,157)	(430,766)

Exchange variations, net	(908)	1,373	(748)

Exchange variation in the year is related to loans and financing and suppliers in foreign currency. The effect was reduced by operations with derivatives (note 36).

F-80

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

32. Income tax and social contribution

	2019	2018	2017
Current income and social contribution taxes
Income tax for the year	(155,521)	(253,120)	(203,932)
Social contribution for the year	(58,905)	(92,502)	(77,148)
Tax incentive – SUDENE/SUDAM (l)	156,594	146,454	112,493
	(57,832)	(199,168)	(168,587)
Deferred income tax and social contribution
Deferred income tax	(625,516)	651,632	(23,976)
Deferred social contribution	(225,186)	217,501	(8,631)
	(850,702)	869,133	(32,607)

Provision for income tax and social contribution contingencies	(5,406)	(5,054)	185
	(856,108)	864,079	(32,422)
	(913,940)	664,911	(201,009)

The reconciliation of income tax and social contribution expenses calculated at the applicable tax rates plus the amounts reflected in the statement of income is set forth below:

	2019	2018	2017
Income before income tax and social contribution	4,536,066	1,880,190	1,435,516
Combined tax rate	34%	34%	34%
Combined tax rate on income tax and social contribution	(1,542,262)	(639,265)	(488,075)
(Additions)/exclusions:
Unrecognized/recognized tax losses and temporary differences	(18,783)	920,745	68,716
Permanent additions and exclusions:
Non-deductible expenses for tax purposes	(10,958)	(12,040)	(6,638)
Tax benefit related to interest on shareholders’ equity	338,449	288,998	64,597
Tax incentive (i)	194,161	146,454	112,498
Use of tax losses not previously recognized	-	-	11,176
Other amounts	125,453	(39,981)	36,717
	628,322	1,304,176	287,066
Income tax and social contribution recorded in income for the period	(913,940)	664,911	(201,009)
Actual rate	20.15%	(35.36%)	14.00%

(l) As mentioned in Note 24 c.3, for investment subsidies not to be considered within the taxable income, they must be recorded as tax incentive reserves, to be used only to offset losses or increase capital. The Company has tax benefits (SUDENE/SUDAM) which comply with these rules.

F-81

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

33. Earnings per share

(a) Basic

Basic earnings per share are calculated by dividing income attributable to shareholders of the Company by the weighted average number of shares issued during the tax year.


	2019	2018	2017

Income attributable to shareholders of the Company	3,622,127	2,545,101	1,234,507

Weighted average number of common shares issued (thousands)	2,420,481	2,420,172	2,420,016

Basic earnings per share (expressed in R$)	1.50	1.05	0.51

(b) Diluted

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

	2019	2018	2017

Income attributable to shareholders of the Company	3,622,127	2,545,101	1,234,507

Weighted average number of common shares issued (thousands)	2,421,018	2,421,075	2,421,072

Diluted earnings per share (expressed in R$)	1.50	1.05	0.51

The calculation of the diluted earnings per share considered 537 thousand shares (903 thousand shares in 2018) related to the granting of Plan 2011-2013, and granting of the 2014-2016 Plan, as mentioned in Note 25.

34. Balances and transactions with related parties

The consolidated balances of transactions with companies of the Telecom Italia Group are as follows:

F-82

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

	Assets
	2019	2018
Telecom Italia Sparkle (1)	1,949	2,877
TI Sparkle (3)	2,007	804
TIM Brasil (4)	5,429	13,993
Gruppo Havas (6)	-	75,600
Other	1,035	1,092
Total	10,420	94,366

F-83

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

	Liabilities
	2019	2018

Telecom Italia S.p.A. (2)	80,825	89,433
Telecom Italia Sparkle (1)	6,531	11,895
TI Sparkle (3)	3,731	4,174
TIM Brasil (4)	6,056	6,044
Vivendi Group (5)	1,164	4,745
Gruppo Havas (6)	11,049	62,686
Other	2,467	107
Total	111,823	179,084

	Revenue
	2019	2018	2017

Telecom Italia S.p.A. (2)	775	858	665
Telecom Italia Sparkle (1)	5,371	5,809	5,281
TI Sparkle (3)	2,052	904	692
Total	8,198	7,571	6,638

	Costs/Expenses
	2019	2018	2017

Telecom Italia S.p.A. (2)	93,188	62,976	8,440
Telecom Italia Sparkle (1)	24,914	30,123	26,775
TI Sparkle (3)	18,700	18,035	30,734
Generali (7)	-	-	3,254
Vivendi Group (5)	1,386	9,439	16,361
Gruppo Havas (6)	264,318	301,752	127,730
Others	18,713	-	3,102
Total	421,219	422,325	216,396

(1)	Ultimate parent company. These amounts refer to roaming, VAS, assignment of means and international voice data – wholesale, according to the contractual conditions between the parties.

(2)	These amounts refer to international roaming, technical post-sales assistance and VAS.

On May 17, 2018, TIM Participações and Telecom Itália signed a licensing agreement on the use of a registered trademark and formally granted to TIM Participações and its subsidiary the right to use the “TIM” trademark against the payment of royalties of 0.5% of the company’s net revenues. The payment is made on a quarterly basis.

(3)	The amounts refer to the leasing of links and EILD, lease of means (submarine cables) and signaling services according to the contractual conditions between the parties.

(4)	Direct controller of the Company. Amounts refer mainly to judicial deposits made due to labor claims.

(5)	Shareholder of TIM S.p.A. The figures refer to value added services - VAS.

F-84

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(6)	The amounts described above, in the income, refer to advertising services, of which R$ 172,956 (R$ 232,492 in 2018) are related to media transfers

(7)	The amounts refer to insurance coverage taken out for operating risks, civil liability and health insurance, among others.

The balance sheet account balances are recorded in the following groups: trade accounts receivable, prepaid expenses, suppliers and other current assets and liabilities.

The Company engages in social investment actions that include donations, projects developed by the TIM Institute and sponsorships. In 2019, the Company invested R$4,207 (R$ 4,637 in 2018) with its own resources in social benefit.

35. Management remuneration

Key Management personnel includes the statutory officers and the Board of Directors. The compensation of key Management personnel for services rendered is shown below:

	2019	2018

Short-term benefits	22,524	23,556
Long-term benefits	900	3,351
Share-based payments remuneration	5,379	10,230
	28,803	37,137

36. Financial instruments and risk management

The financial instruments registered by the Company and its subsidiary include derivatives, which are financial liabilities measured at fair value through profit or loss. At each balance sheet date they are measured at their fair value. Interest, monetary adjustments, exchange variations and variations arising from measurement at fair value, where applicable, are recognized in income as they are incurred, under financial income or expenses.

Derivatives are initially recognized at fair value as at the date of the derivative agreement and subsequently revised to fair value. The method used to recognize any gain or loss depends on whether or not the derivative is assigned as a hedge instrument in cases where hedge accounting is adopted.

Through its subsidiary, the Company performs non-speculative derivative transactions, to: i) reduce the exchange variation risks, and ii) manage exposure to the interest risks involved. The Company’s derivative financial transactions consist specifically of swap contracts.

F-85

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The Company’s financial instruments are presented, through its subsidiary, in compliance with IFRS 9.

The major risk factors to which the Company and its subsidiary are exposed are as follows:

(i) Exchange variation risks

Exchange variation risks refer to the possibility of the subsidiary incurring: i) losses on unfavorable exchange rate fluctuations, which would increase the outstanding balances of borrowing and financing taken in the market along with the related cost expenses, or ii) an increase in the cost of commercial agreements affected by exchange variations. In order to reduce this kind of risk, the subsidiary enters into swap contracts with financial institutions for the purpose of avoiding the impact of foreign exchange fluctuations on the financial results, and trade agreements containing sections that provide for foreign exchange bands with the purpose of partially reducing exchange rate risks, or US Dollar stock options intended to reduce foreign exchange exposure risks in business contracts.

As at December 31, 2019, the borrowing and financing of the subsidiary indexed to foreign currency were fully hedged by swap contracts in terms of time and amount. Any gains or losses arising from these swap contracts are recorded in the results of the subsidiary.

Besides the risks mentioned above, no other significant financial assets and liabilities are indexed to foreign currencies.

(ii) Interest rate risks

Interest rate risks relate to:

- The possibility of variations in the fair value of TJLP and/or TLP-indexed financing taken by the subsidiary, when these rates are not proportional to the CDI rate. As at December 31, 2019, the subsidiary had no swap transactions linked to the TJLP and/or TLP.

- The possibility of unfavorable changes in interest rates would result in higher finance costs for the subsidiary due to the indebtedness and the obligations assumed by the subsidiary under the swap contracts indexed to floating interest rates (CDI percentage). However, as at December 31, 2019, the subsidiary’s financial funds were invested in CDIs and this considerably reduces this risk.

(iii) Credit risk inherent to providing services

The risk involves the possibility of the subsidiary factoring in losses arising from the inability of subscribers to pay the invoiced amounts. To keep this risk to a minimum, the subsidiary undertakes preventive credit analyses of all orders placed by the sales areas while monitoring the accounts receivable from subscribers, blocking their ability to use the services, among other actions, in the event that the customers do not pay their debts. There were no customers contributing more than 10% of the net accounts receivable as at December 31, 2019 and 2018 or revenue from services rendered.

F-86

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(iv) Credit risk inherent to sales of handsets and prepaid phone cards

The policy of the Group regarding the sale of handsets and the distribution of prepaid phone cards is directly related to the levels of credit risk accepted during the normal course of business. The selection of partners, the diversification of the accounts receivable portfolio, monitoring loan conditions, positions and order limits established for the traders and the constitution of real guarantees are among the procedures adopted by the subsidiaries to reduce possible problems in collecting from their commercial partners. There are no customers that have accounted for more than 10% of the receivables from the sale of goods during the period ending in December 2019 and 2018. The Company had one customer that accounted for more than 10,6 % of the net trade accounts receivable from the sale of goods as at December 31, 2019.

(v) Liquidity risk

- Liquidity risk arises from the need for cash to meet the Company's obligations. The Company structures the maturity dates of its non-derivative financial instruments and of its respective derivative financial instruments so as not to affect liquidity.

- The Company’s liquidity and cash flow management is performed on a daily basis in order to ensure that the operating cash generation and prior funding, whenever necessary, are sufficient to maintain its schedule of operational and financial commitments.

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

(vi) Financial credit risk

The cash flow estimate is made and aggregated by the Finance and Treasury department of the Company. This department monitors the continuous liquidity requirements estimate to ensure that the Company has sufficient cash to meet its operating needs. This estimate takes into account investment plans, debt financing, compliance with contractual clauses, compliance with internal goals and, if applicable, compliance with regulatory, external or legal requirements.

This risk relates to the possibility of the Company and its subsidiary incurring losses due to difficulties in realizing their short-term investments and swap contracts due to bankruptcy of the counterparties. The subsidiary minimizes the risk associated with these financial instruments by operating only with sound financial institutions and adopting policies that establish maximum risk concentration levels per institution.

Fair value of derivative financial instruments

The consolidated derivative financial instruments are shown as follows:

	2019				2018
	Assets	Liabilities	Net	Assets	Liabilities	Net

Transactions involving derivatives	46,511	(4,405)	42,106	81,408	(11,618)	69,790

Current portion	16,602	(858)	15,744	50,769	(2,373)	48,396
Non-current portion	29,909	(3,547)	26,362	30,639	(9,245)	21,394

F-87

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The consolidated financial derivative instruments with long-term maturities as at December 31, 2019 were as follows:

	Assets	Liabilities
2021	8,096	(709)
2022	8,096	(709)
2023 onwards	13,717	(2,129)
	29,909	(3,547)

Non-derivative financial liabilities mainly represent suppliers, dividends payable and other obligations maturing in the next 12 months, except for borrowing and financing and financial leases, whose nominal payment flows are disclosed in Notes 19 and 15.

Consolidated financial assets and liabilities valued at fair value:

2019
	Level 1	Level 2	Total
Total assets	658,328	46,511	704,839

Financial assets valued at fair value	658,328	46,511	704,839

Derivatives used for hedging purposes	-	46,511	46,511
Securities	658,328	-	658,328

Total liabilities	-	4,405	4,405

Financial liabilities valued at fair value through profit or loss	-	4,405	4,405

Derivatives used for hedging purposes	-	4,405	4,405

2018
	Level 1	Level 2	Total
Total assets	790,070	81,408	871,478

Financial assets valued at fair value	790,070	81,408	871,478

Derivatives used for hedging purposes	-	81,408	81,408
Securities	790,070	-	790,070

Total liabilities	-	11,618	11,618

Financial liabilities valued at fair value through profit or loss	-	11,618	11,618

Derivatives used for hedging purposes	-	11,618	11,618

F-88

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The fair value of financial instruments traded on active markets is based on quoted market prices as at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. These instruments are included in Level 1. The instruments included in Level 1 mainly comprise investments in CDBs and repurchases classified as trading securities.

The fair value of financial instruments that are not traded on an active market (for example, over-the-counter derivatives) is determined using valuation techniques. These valuation techniques maximize the use of observable market data when available and rely to the minimum extent possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Specific valuation techniques used to value financial instruments include:

· Quoted market prices or financial institutions quotes or dealer quotes for similar instruments.

· The fair value of interest rate swaps is calculated as the present value of the estimated future cash flow based on observable yield curves.

· Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

The fair values of derivative financial instruments of the subsidiaries were determined based on the future cash flow (asset and liability position), taking into account the contracted conditions and bringing this flow to its present value by means of the discounted future interest rates disclosed in the market. The fair values were estimated at a specific time, based on the information available and on the Company’s own valuation methodologies.

Financial instruments by category

The Company’s financial instruments by category can be summarized as follows:

December 31, 2019
	Measured at amortized cost	Fair value through profit or loss	Total
Assets, per balance sheet	6,769,032	704,839	7,473,872

Derivative financial instruments	-	46,511	46,511
Trade accounts receivable and other accounts receivable, excluding prepayments	3,287,855	-	3,287,855
Marketable securities	-	658,328	658,328
Cash and cash equivalents	2,284,810	-	2,284,810
Leasing	156,378	-	156,379
Judicial deposits	1,006,899	-	1,006,899
Other assets to offset	33,090	-	33,090

F-89

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

	Measured at amortized cost	Fair value through profit or loss	Total
	14,310,830	4,405	14,315,235
Liabilities per balance sheet
Borrowing and financing	2,029,088	-	2,029,088
Derivative financial instruments	-	4,405	4,405
Suppliers and other obligations, excluding legal obligations	3,923,035	-	3,923,035
Leasing	7,780,870	-	7,780,870
Dividends payable	577,837		577,837

December 31, 2018

	Measured at amortized cost	Fair value through profit or loss	Total
Assets per balance sheet	5,639,420	871,478	6,510,898

Derivative financial instruments	-	81,408	81,408
Trade accounts receivable and other accounts receivable, excluding prepayments	2,969,116	-	2,969,116
Marketable securities	-	790,070	790,070
Cash and cash equivalents	1,075,530	-	1,075,530
Leasing	208,049	-	208,049
Judicial deposits	1,345,113	-	1,345,113
Other assets to offset	41,612	-	41,612


	Measured at amortized cost	Fair value through profit or loss	Total


Liabilities per balance sheet	8,296,570	11,618	8,308,188

Borrowing and financings	1,663,017	-	1,663,017
Derivative financial instruments	-	11,618	11,618
Suppliers and other obligations, excluding legal obligations	4,323,374	-	4,323,374
Leasing	1,940,074	-	1,940,074
Dividends payable	370,105	-	370,105

F-90

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The regular purchases and sales of financial assets are recognized as at the trade 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 the fair value are booked in income for the year as finance income and expenses.

Financial risk hedge policy adopted by the Company – Synthesis

The Company’s policy states that mechanisms must be adopted to hedge against financial risks arising from borrowing in foreign currency, so as to manage the exposure to the risks associated with exchange variations.

Derivative financial instruments hedging against exchange variations must be acquired simultaneously with the closing of the debt that gave rise to that exposure. The coverage level for this exchange exposure is 100% of the risk, both in terms of maturity date and amount.

As at December 31, 2019, no types of margins or collateral applied to the Company’s or the subsidiary’s transactions involving derivative financial instruments.

The criteria for choosing the financial institutions abide by parameters that take into account the rating provided by reliable risk analysis agencies, shareholders’ equity and concentration levels of transactions and funding.

The transactions involving derivative financial instruments entered into by the subsidiaries and outstanding as at December 31, 2019 and 2018 are shown in the table below:

December 31, 2019

		COUNTERPARTY				% Coverage	AVERAGE SWAP RATE
Currency	SWAP Type	DEBT	SWAP	Total Debt	Total Swap (Asset Side)		Asset Side	Liability Side
USD	LIBOR X DI	KFW/ Finnvera	JP Morgan e BOFA	330,217	330,217	100%	LIBOR 6M + 0.75% p.a.	85,50% do CDI
USD	PRE X DI	CISCO	Santander e JP Morgan	40,366	40,366	100%	2.50% p.a.	84,50% do CDI

December 31, 2018

		COUNTERPARTY				% Coverage	AVERAGE SWAP RATE
Currency	Swap type	Debt	SWAP	Total Debt	Total Swap (Asset Side)		Asset Side	Liability Side
USD	LIBOR X DI	KfW	JP Morgan	43,420	43,420	100%	LIBOR 6M + 1.35% p.a.	102.50% of CDI
USD	LIBOR X DI	KFW/ Finnvera	JP Morgan and BOFA	378,595	393,387	100%	100% LIBOR 6M + 0.75% p.a.	85,50% of CDI
USD	PRE X DI	CISCO	Santander and JP Morgan	116,466	116,466	100%	2.18% p.a.	88,20% of CDI

F-91

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

In August 2018, the Company purchased US Dollar call options in the amount of US$100 million, with a strike price of R$4.00, in order to reduce the effects of foreign exchange variations on business contracts. The options were divided into nine maturity brackets worth US$11.1 million each (October 2018 to June 2019), and they were purchased for the initial amount of R$11.7 million, taking into account a reference spot price of R$3.7655 upon purchase. Due to the increase in US Dollar rates and a reduction in the risk exposure of business contracts, the Company settled the installments maturing in October 2018 and November 2018 in advance, for the price of R$5.6 million, considering a reference spot price of 4.157 at the time of the sale. In November 2018, considering the close maturity dates and the reduced risk exposure in commercial agreements, the Company settled in advance those maturing in December 2018 and in January and February 2019 in the amount of R$1.0 million. The options remaining matured on June 15, 2019. The Company did not have options transactions on December 31.

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

In order to identify possible distortions arising from consolidated derivative financial instrument transactions currently outstanding, a sensitivity analysis was carried out taking into account three different scenarios (probable, possible and remote) and their respective impacts on the results, as follows:

Description	2019	Probable Scenario	Possible Scenario	Remote Scenario


Debt in USD (Cisco and KFW)	381,178	381,178	474,450	567,104
A) ∆ Aggregate debt variation			93,272	185,926
Fair value of the asset side of the swap	381,178	381,178	474,450	567,104
Fair value of the liability side of the swap	(338,971)	(338,971)	(337,647)	(336,387)
Swap result	42,207	42,207	136,803	230,717
B) ∆ Aggregate swap variation			94,596	188,510
C) Final result (B-A)			(1,324)	(2,584)

Given the characteristics of the derivative financial instruments of the subsidiaries, the Company's assumptions basically took into account the effects of: i) the variation in the CDI, ii) the variation of the LIBOR rate, and iii) the variation in the US Dollar rate used in the transactions, achieving, respectively, the percentages and quotations indicated below:

Risk variable	Probable scenario	Possible scenario	Remote scenario
	(current)
CDI	4.40%	5.50%	6.60%
LIBOR	1.91%	2.39%	2.87%
USD	4.0307	5.0384	6.0461

F-92

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

As the subsidiaries hold derivative financial instruments to hedge their respective financial debt, the variations in the scenarios are monitored from the respective subject of the hedge, thereby showing that the counterpart of the effects involving the exposure created by the swaps will be reflected in the debt. In the case of these transactions, the subsidiaries disclosed the fair value of the subject matter (debt) and the derivative financial instrument of the hedge in separate lines, as shown in the sensitivity analysis position above, so as to reveal the net exposure of its subsidiaries in each of the three scenarios mentioned.

Attention is drawn to the fact that the sole purpose of the transactions entered into by the subsidiaries involving derivative financial transactions is to protect their balance sheet positions. Therefore, any improvement or deterioration in their respective market values will represent an inverse movement in the corresponding installments of the financial debt contracted, which is the subject matter of the subsidiaries’ derivative financial instruments.

Sensitivity analyses referring to the derivative financial instruments outstanding as at December 31, 2019 were conducted basically taking into account the assumptions surrounding the variations in market interest rates and the variation of the US Dollar used in the swap agreements. The use of those assumptions in the analyses was exclusively due to the characteristics of the derivative financial instruments, which represent exposure to interest rate and exchange variations only.

Position showing gains and losses with derivatives in the period

		2019
Net income from USD vs. CDI transactions		5,077

Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to shareholders and benefits to other stakeholders, in addition to maintaining an optimal capital structure to reduce the cost of capital. In order to maintain or adjust its capital structure the Company can review its policy on paying dividends, returning capital to the shareholders or issuing new shares or selling assets to reduce its level of indebtedness, for example.

The Financial Leverage Index as at December 31, 2019 and December 31, 2018 can be summarized as below:

	2019			2018
	Balances with	Adjustments	Balances without
	IFRS 16	Adjustments	IFRS 16
Total borrowings and financings and derivatives (Note 19 and 36)	1,986,982	‐	1,986,982	1,593,227
Lease - Liabilities (Note 15)	7,780,870	(6,196,068)	1,584,802	1,940,074
Lease - Assets (Note 15)	(156,378)	‐	(156,379)	(208,049)
Less: Cash and cash equivalents (Note 4)	(2,284,810)	‐	(2,284,810)	(1,075,530)
FIC (Note 5)	(654,479)	‐	(654,479)	(784,841)
Net Debt	6,672,185	(6,196,068)	476,116	1,464,881

EBITDA (1) (last 12 months) - Standardized	9,643,838	(1,315,684)	8,328,153	6,371,844

Financial Leverage Index - Unaudited	0.69	4.71	0.06	0.23

(1) Reconciliation to Net Income for the year:

Adjusted Net Income	3,622,127	143,076	3,765,203	2,545,101
Depreciation and amortization	5,128,981	(940,144)	4,188,837	3,954,321
Net financial income	(21,210)	(592,323)	(613,533)	537,333
Income tax and social contribution	913,940	73,706	987,646	(664,911)
EBITDA (1)	9,643,838	(1,315,685)	8,328,153	6,371,844

(1) EBITDA: Earnings before interest, tax, depreciation and amortization (not an accounting metric)

F-93

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

Changes in financial liabilities

Changes in liabilities due to financing activities, such as borrowing and financing, financial leasing and financial instruments are presented below:

	Borrowing and financing	Financial leasing	Derivative financial instruments (assets) liabilities
December 31, 2018	1,663,017	1,940,074	(69,790)
Adoption of IFRS 16	-	5,256,114	-
Inflows	1,000,000	1,834,914	-
Financial expenses	167,998	821,463	9,068
Foreign exchange variations, net	18,222	-	(14,145)
Payments	(820,149)	(1,585,712)	32,761
Remeasurement IAS 17 (i) / IFRS16	-	(485,983)	-
December 31, 2019	2,029,088	7,780,870	(42,106)

(i) As mentioned in Note 2.f, the Company decided to adopt the pronouncement IFRS 16 – Lease, retroactively with the effect of the application as at January 1, 2019. Therefore, the lease previously classified as a financial lease, using IAS 17, the book value of the right-of-use asset and of the lease liability on the date of initial application of the standard, comprised the book value of the lease asset and of the lease liability immediately prior to the application of this new standard, in accordance with IAS 17. However, for such leases, as determined by the new standard, the Company is required to become to measure the right-of-use asset and the lease liability as from the initial application based on the new standard. Thus, the lease previously measured in accordance with IAS 17 was remeasured as at March 31, 2019, specifically with respect to the exclusion of variable lease payments that depend on an index or a rate, given that the projected inflation took into account for the period of the agreements previously measured in accordance with IAS 17.

F-94

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

37. Defined benefit pension plans and other post-employment benefits

	2019	2018

PAMEC/ asset policy and medical plan	5,782	2,850

ICATU, SISTEL and FUNCESP

The Company has been sponsoring a private pension plan with defined benefits for a group of employees from the former TELEBRÁS system under the administration of the Fundação Sistel de Seguridade Social – SISTEL and of ICATU Multi-sponsored fund. In addition to the plans coming from the Telebrás System, there is also a plan managed by Fundação CESP resulting from the merger of AES Atimus.

The pension plans mentioned, as well as the medical plans, are briefly explained below:

PBS Assisted (PBS-A Tele Celular Sul and PBS-A Tele Nordeste Celular): SISTEL's benefit plan, which has defined benefit characteristics and includes inactive employees who were part of the plans sponsored by the companies of the former TELEBRÁS System;

PBS (PBS Tele Celular Sul and PBS Tele Nordeste Celular): pension plan for inactive employees, such plan being multi-sponsored, under administration of ICATU Multi-sponsored fund;

Management Agreement: management agreement for the payment of pensions to retirees and pensioners, for the retirees of the Company's predecessors, under administration of ICATU Multi-sponsored fund;

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

AES Telecom: Part of the supplementary pension and pension plan PSAP, managed by the CESP Foundation, which is the Company's responsibility, in view of the acquisition of Eletropaulo Telecomunicações Ltda (AES Atimus), succeeded by TIM Fiber SP LTDA, later incorporated to TIM Celular which was incorporated by the Company.

F-95

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

Medical Plan Fiber: Provision for the maintenance of a health plan as a 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 Celular and later incorporated by the Company.

We present below the actuarial position of liabilities and assets related to the retirement and health care plans, as of December 31, 2019, according to the rules established by IAS 19:

(a) Effects as of December 31:

	Plans						Totals
	PBS	PBS Assisted	Management agreement	PAMEC/Asset Policy	AES Telecom	Medical Plan	2019	2018
	PBS	PBS Assisted	Management agreement	PAMEC/Asset Policy	AES Telecom	Medical Plan	2019	2018
Reconciliation of assets and liabilities as of 12/31/19	(*)	(*)	(*)

Present value of actuarial liabilities	40,427	10,107	151	1,080	11,099	2,585	65,449	52,206
Fair value of plan assets	(43,991)	(13,527)	(425)	-	(8,982)	-	(66,925)	(68,768)
Present value of obligations in excess of fair value of assets	(3,564)	(3,420)	(274)	1,080	2,117	2,585	(1,476)	(16,562)

Net actuarial liabilities / (assets)	(3,564)	(3,420)	(274)	1,080	2,117	2,585	(1,476)	(16,562)

(*) No assets were recognized by the sponsors, due to the impossibility of reimbursement of this surplus, and the sponsor's contributions will not be reduced in the future.

(b) Movement in net actuarial liabilities / (assets)

	Plans
	PBS	PBS Assisted	Management agreement	PAMEC/Asset Policy	AES Telecom	Medical Plan

Actuarial Liabilities (Assets) at 12/31/18	(14,964)	(4,209)	(239)	884	102	1.864
Expenditure (revenue) recognized in income	(1,394)	(391)	(22)	81	100	283
Sponsor Contributions	-	-	-	(47)	-	(26)
Recognized actuarial (gains) or losses	12,794	1,180	(13)	162	1,915	464
Unrecognized actuarial gains or losses	-	-	-	-	-	-
Net actuarial liabilities (assets) as of 12/31/19	(3,564)	(3,420)	(274)	1,080	2,117	2,585

F-96

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

(c) Reconciliation of the present value of the obligations

	Plans
	PBS	PBS Assisted	Management agreement	PAMEC/Asset Policy	AES Telecom	Medical Plan

Value of liabilities at 12/31/18	32,767	8,285	156	884	8,250	1,864
Cost of current service	5	-	-	-	93	108
Interest on actuarial liability	2,932	738	14	81	770	175
Benefits paid in the year	(2,629)	(719)	(9)	(47)	(348)	(27)
Contributions paid by participants	-	-	-	-	57	-
(Gains)/losses on liabilities	7,352	1,803	(10)	162	2,277	465

Value of liabilities at 12/31/19	40,427	10,107	151	1,080	11,099	2,585

(d)Reconciliation of fair value of assets

	Plans
	PBS	PBS Assisted	Management agreement	PAMEC/Asset Policy	AES Telecom	Medical Plan

Fair value of assets at 12/31/18	47,731	12,494	395	-	8,148	-
Benefits paid in the year	(2,629)	(719)	(9)	-	(348)	-
Effective return on assets in the year	4,326	1.128	36	-	763	-
Actuarial gain (loss) on plan assets	(5,437)	624	3	-	361	-
Contributions paid by participants	-	-	-	-	58	-
Sponsor contributions poured into the plan	-	-	-	-		-
Fair value of assets at 12/31/19	43,991	13,527	425	-	8,982	-

(e) Expenditure planned for 2020

	Plans
	PBS	PBS Assisted	Management agreement	PAMEC/Asset Policy	AES Telecom	Medical Plan

Current service cost (with interest)	15	-	-	-	125	150
Interest on actuarial liabilities	2,650	658	10	72	774	179
Expected return on assets	(2,893)	(888)	(29)	-	(627)	-
Interest on the effect of the (asset)/ liability limit	243	230	19	-	-	-

Total net expense (income) to be recognized	15	-	-	72	272	329

F-97

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

Actuarial assumptions adopted in the calculations

The main actuarial assumptions adopted in the calculations were the following:

Nominal discount rate of the actuarial liability:	PBS South: 6.81% / 3.20%; PBS Northeast: 6.83% / 3.22%; MA: 6.85% / 3.24%; PBS-A: 6.75% / 3.14%; AES: 7.09% / 3.47%; PAMEC: 6.77% / 3.16%; FIBER: 6.96% / 3.34%
Nominal wage growth rate:	PBS e MA: Not Applicable MA and PBS-A: Not Applicable; AES: 5.57%/ 2.00%; PAMEC and FIBER: Not Applicable
Biometric general mortality table:	PBS, MA and PBS-A: AT-2000 segregated by sex, softened by 10%
Biometric disability entry table:	PBS: Álvaro Vindas; MA, PBS-A and PAMEC: Not Applicable; AES and FIBER: Mercer Disability;
Expected rate of turnover:	PBS, MA, PBS-A and PAMEC: Nula AES and FIBER: 0.15/(time of service + 1), being null and void as from 50 years
Probability of entry into retirement:	PBS and FIBER: 100% in 1st eligibility; MA: Not Applicable; AES: 3% per year between the first age of eligibility for early retirement and eligibility for normal retirement; MA, PBS-A and PAMEC: Not Applicable
Estimated long-term inflation rate	PAMEC and FIBER: 7.64% / 3.25%
Calculation method	Projected Unit Credit Method

F-98

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

38. Insurance

The Company and its subsidiary have a policy for monitoring the risks inherent in their operations. Accordingly, as at December 31, 2019, the Company and its subsidiary had insurance coverage against operating risks, third-party liability and health, among others. The Management of the Company and its subsidiary consider that the insurance coverage is sufficient to cover eventual losses. The table below shows the main assets, liabilities or interests insured and their respective amounts:

Types		Amount Insured
Operating risk		R$ 32,274,029
General Liability - RCG		R$ 80,000
Cybernetic risks (cyber)		R$ 28,520
Vehicles (executive and operational fleets)		R$1,000 for civil liability optional (property damages and personal injury) and R$100 for moral damages.

39. Subsequent Events

·	Financing agreement with Banco do Nordeste do Brasil

On January 31, 2020, the Company's wholly-owned subsidiary signed a financing agreement with Banco do Nordeste do Brasil, in the total amount of R$752,479: (i) R$325,071 at IPCA cost + 1.4386% and subject to a 15% default bond; and, (ii) R$427,408 at IPCA cost + 1.7582% and subject to a 15% default bond. The purpose of the facility is to finance Capex in the Northeast and North of the states of Minas Gerais and Espírito Santo from 2019 to 2022 with a total payment term of 8 years, being 3 grace years and 5 years of amortization. The operation will be guaranteed by (i) a bank guarantee proportional to 100% of the amount of each disbursement; and (ii) a bond of receivables proportional to 5% of the amount of each disbursement. To date, there were no disbursements.

·	Preliminary negotiations regarding Oi Mobile

On March 10, 2020, TIM Participações S.A. and its wholly-owned subsidiary TIM S.A., pursuant to Article 157 of Law 6,404 and the provisions of CVM Instruction 358, jointly inform its shareholders, the general market and other interested parties that: TSA jointly with TELEFÔNICA BRASIL S.A. (VIVO) expressed to Bank of America Merrill Lynch (“BofA”), Oi Group’s financial advisor, their interest in initiating negotiations targeting a potential joint acquisition of Oi Group's mobile business, in whole or in part, so that, in the event of the completion of the operation, each of the interested parties will receive a portion of that business. The interest in the transaction arises from the perspective that this, if materialized, will add value to the Company, generating benefits for its customers and shareholders, by accelerating its growth, increasing operational efficiency and quality of service. Additionally, the eventual conclusion of the operation would bring benefits to the telecommunications market in general, reinforcing its competitiveness and investment capacity.

F-99

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

·	CVM approves category “A” registration request of TIM S.A.

On March 18, 2020, TIM PARTICIPAÇÕES SA and its wholly-owned subsidiary, TIM SA, following the Material Fact published on October 28, 2019, communicate to their shareholders, to the market in general and to the other interested parties that TSA received on March 17, 2020, Official Letter-RIC No. 4/2020/CVM/SEP informing about the granting of registration as a publicly-held company in category “A” before the CVM (without offering securities), pursuant to CVM Instruction 480/09.

The Company and TSA point out that there was no application for registration of an Offer of Securities, which is why this communication should not be considered as a public offering of shares or other securities by the Company or TSA. The only company

·	Partnership between TIM Brasil and Banco C6

On March 26, 2020, TIM S.A. and BANCO C6 S.A., jointly called “Partners”, concluded the negotiations regarding a strategic partnership with the objective of developing combined offers with special benefits for the Partners’ customer bases. For the first time, digital banking and telecommunications services are joined in a single proposition. The agreement also provides for the possibility of exploring sales and payment channels synergies, expanding the distribution of offers and optimizing costs.

The Partners highlight the innovative character of the agreement they concluded, which is centered on delivering convenience through the integration of essential services to customers’ daily lives. This approach offers a great value creation potential for both companies through client base growth and higher customer loyalty. In this context, TIM wants to position itself ahead of the market, creating a competitive differentiation factor based on innovation and service offerings.

This agreement does not create a joint venture, therefore, TIM maintains the independence of its operations. However, depending on the evolution of the results of this partnership, TSA will become a minority shareholder in C6 through an objective-based compensation mechanism.

The Company will keep its shareholders and the market informed in accordance with the regulations in force.

·	Credit Agreement

On April 7, 2020, due to global macroeconomic uncertainty regarding COVID-19 and its possible impacts, TIM S.A. executed a new credit agreement with The Bank of Nova Scotia in the amount of R$574 million denominated in U.S. dollars, guaranteed by TIM Participações. The cost post-hedge is 155.0% and disbursement occurred on April 22, 2020, with a one year maturity.

COVID 19

In December 2019, an outbreak of a contagious disease, the Coronavirus Disease 2019 (COVID-19), began in mainland China and has since beginning of 2020, the virus spread through Europe, the US and various other countries, including Brazil. The COVID-19 outbreak has developed rapidly in 2020 and measures taken to contain the virus have affected economic activity, which in turn may have implications on the Company's results of operations and cash flows. Although the COVID-19 existed at December 31, 2019, it is the severity of the virus and the responses to the outbreak which may have an impact on the entity's operations occurred post December 31, 2019.

F-100

TIM PARTICIPAÇÕES AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

As at December 31

(In thousands of Reais, except as otherwise stated)

The Company analyzed IAS10 considerations for purpose of this subsequent event in order to conclude if COVID-19 outbreak could present any impact in year-end financial statements figures or if it would only be a disclosure requirement for Company’s financial statements. The Covid-19 events arose after the reporting period and not predictable by the Company or any also other market participants, as such the outbreak is a non-adjusting event for the reporting period ending December 31, 2019 and no adjustment needs to be made to amounts recognized in the consolidated financial statements ended on December 31, 2019. Based on all information available as at December 31st, 2019, it was not foreseeable the COVID-19 could result a risk over the Company’s consolidated balance sheets and the consolidated statements of income.

The Company is complying with the health and safety protocols established by the authorities and agencies is monitoring the development of the situation and closely evaluating the impact of the COVID-19 on its business. The COVID-19 pandemic and its potential impact on general commercial activity and the global economy may reduce demand from our clients on the more expensive plans or certain services (e.g. roaming) or even lead to plan cancellations or increased default, while it may lead to disruptions in our logistic chain, in our suppliers’ production or deliveries or in our ability to deliver our products (such as new devices or SIM cards) or to service our network on a timely basis, which may have a material adverse effect on our business and results of operations.

At this time, we have not suffered any material impact to our operations. While it is too early for us to predict the impacts on our business or our financial targets of the expanding pandemic and the governmental responses to it, we would be materially adversely affected by a protracted downturn in local, regional or global economic conditions.

F-101

TIM (NYSE:TIMB)
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