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

FORM 6-K

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

Date of Report: July 27, 2021

Commission File Number: 001-39570

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

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

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

Form 20-F ☒ Form 40-F ☐

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

Yes ☐ No ☒

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

Yes ☐ No ☒

TIM S.A. and TIM S.A. and subsidiary

Quarterly information on

June 30, 2021

TIM S.A. and TIM S.A. and SUBSIDIARY

QUARTERLY INFORMATION

June 30, 2021

Contents

INDEPENDENT AUDITOR’S REVIEW REPORT ON QUARTERLY INFORMATION

The shareholders, board of directors and officers

TIM S.A.

Rio de Janeiro - RJ

Introduction

We have reviewed the accompanying individual and consolidated interim financial information, contained in the Quarterly Information Form (ITR) of TIM S.A. (“Company”) for the quarter ended June 30, 2021, comprising the balance sheet as of June 30, 2021 and the statements of income and of comprehensive income for the three and six-month periods then ended, and the statements of changes in shareholders’ equity and of cash flows for the six month period then ended, including the explanatory notes.

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

Scope of review

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

Conclusion on the individual and consolidated interim financial information

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

Other matters

Statements of value added

The quarterly information referred to above includes the individual and consolidated statements of value added (DVA) for the six-month period ended June 30, 2021, prepared under the responsibility of the Company's management and presented as supplementary information for IAS 34 purposes. These statements have been subject to review procedures performed in conjunction with the review of quarterly information to conclude that they are reconciled with interim financial information and accounting records, as applicable, and if their form and content are consistent with the criteria defined in NBC TG 09 “Statement of Added Value”. Based on our review, we are not aware of any fact that leads us to believe that these statements of value added were not prepared, in all material respects, in accordance with the criteria established in the Technical Pronouncement and is consistent with respect to the individual interim financial information and consolidated taken as whole.

Rio de Janeiro, July 26, 2021.

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/O-6

Fernando Alberto S. Magalhães

Accountant CRC-1SP133169/O-0

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

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

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

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

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

See the accompanying notes to the individual quarterly information.

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

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

2021 Second Quarter Results (Including the effects of IFRS 9, 15 and 16)

Operational Resilience and Quick Recovery of Market Dynamics

Continuous infrastructure expansion, offering the best customer experience

Accelerated Revenue and EBITDA growth, maintaining their recovery trend

*Normalized EBITDA according to the items in the Costs section (+R$ 13.7 million in 2Q21 and +R$ 2.6 million in 1Q20). Net income normalized by tax credit (-R$ 4.6 million in 2Q21).

Financial Performance (Including the effects of IFRS 9, 15 and 16)

OPERATING REVENUE

*The Customer Platform includes revenues from new initiatives, such as Financial Services and Mobile Advertising.

Breakdown of Mobile Segment (net of taxes and deductions):

Mobile Service Revenues (MSR) totaled R$3,983 million, up by 8.5% and by 0.9% compared to 2Q20 and 1Q21 respectively. This growth stems from better performances both in prepaid and postpaid segments and also a more favorable YoY comparison basis. Year to date, MSR increased by 5.6% YoY.

Breaking down each mobile segment in the second quarter:

ARPU’s (Average Monthly Revenues per User) continues to drive MSR growth. Consolidated mobile indicator grew 10.3% YoY and reached R$25.8, reflecting TIM’s successful efforts to continually monetize its customer base through migrations to higher value prepaid and postpaid plans.

Likewise, segments’ ARPU, which excludes Other Mobile Revenues and Customer Platform, also posted consistent growth, up by 11.2% YoY in prepaid and by 5.6% YoY in human postpaid (ex-M2M), contributing to the Company’s Volume to Value strategy.

In 2Q21, Interconnection Revenues (ITX) decreased 5.8% YoY, reflecting the lower incoming traffic in the period. Furthermore, this line was impacted by the comparison basis, given that the traffic hiked in 2Q20 due to the social distancing measures imposed by the pandemic. The incidence of MTR on Net Service Revenues reached 2.6% in the quarter. In 6M21, this line was up by 6.6% YoY mainly from the impact of a higher MTR rate (Mobile Termination Revenue) at the beginning of the year.

Customer Platform Revenues totaled R$ 29 million in 2Q21, of which R$ 20 million were generated by Financial Services, and R$ 9 million by Mobile Advertising. Year to date, Customer Platform Revenues totaled R$ 46 million, of which R$ 30 million were generated by Financial Services, and R$ 16 million by Mobile Advertising.

The Other Revenues line was up by 16.8% YoY in 2Q21, mainly due to increased revenues from network sharing and swap agreements, in line with the Company's strategy to expand the fiber optic transport infrastructure (backbone and backhaul) with higher efficiency in asset allocation (Capex and Opex). Year to date, this line was up by 13.4% YoY.

Breakdown of Fixed Segment (net of taxes and deductions):

Fixed Service Revenues totaled R$ 283 million in the quarter, an 11.1% increase from 2Q20. TIM Live remains the main performance driver, up by 21.0% YoY in 2Q21, accounting for nearly 63% of fixed service revenues. On the other hand, other fixed services were down by 2.6% YoY.

In 6M21, Fixed Service Revenues came to R$ 564 million, up 11.6% YoY. In turn, TIM Live revenues increased by 20.7% YoY, following the ultra-broadband coverage evolution, which was present in 28 cities plus 7 administrative regions in the Federal District by the end of the period.

TIM Live’s ARPU (Average Monthly Revenues per User) was up by 8.2% YoY. The performance is explained by the penetration of higher-value FTTH offers with faster speeds (connections over 100 Mbps accounts for more than 50% of customer base) and price readjustments as of July 2020 in part of the plans.

OPERATING COSTS AND EXPENSES

*Operating Costs normalized by specialized legal and administrative services (+R$ 13.7 million in 2Q21) and adjustments to towers’ sale-leaseback contract (+R$ 2.6 million in 1Q20).

Reported Operating Costs and Expenses totaled R$ 2,320 million in 2Q21 (+15.8% YoY). This quarter, this line was impacted by non-recurring expenses – in the amount of R$13.7 million, related to specialized legal and administrative services associated with the acquisition/restructuring projects of the Oi’s and FiberCo’s assets. The comparison is slightly impacted by non-recurring items accounted for in 1Q20 – in the amount of R$2.6 million – related to adjustment to towers’ sale-leaseback contract.

Breakdown of Costs and Expenses Performance:

Personnel Costs increased by 9.9% YoY in 2Q21. This performance was mainly influenced by the resumption of expenses with sales teams after the reopening of sales channels. Compared to 1Q21, personnel costs were down by 6.1%, stemming from lower expenses with social security labor contingencies. In 6M21, this line was up by 8.9% YoY, also impacted by the resumption of expenses with sales teams and organic effects, such as inflation on salaries and benefits.

Selling and Marketing Expenses were up by 16.9% YoY in 2Q21, mainly impacted by increased commercial activity compared to the same period in 2020. Cost lines that led to this increase were: (i) marketing and advertising expense, due to the launch of the mothers’ day campaigns, new prepaid and the Brazilian Olympic Committee campaigns; and (ii) sales commissions. Selling and marketing costs were also down by 8.1% QoQ due to (i) lower marketing and advertising expenses compared to 1Q21; and (ii) drop in Fistel expenses. In 6M21, this line was up by 8.4% YoY mainly stemming from higher marketing and advertising expenses.

The Network and Interconnection group rose 2.1% YoY in 2Q21, boosted by higher infrastructure sharing agreements and maintenance costs, offset by a decrease in interconnection subgroup, which, despite the higher mobile termination rate (MTR), recorded less traffic. In 6M21, the Network and Interconnection group grew 8.2% due to higher costs with infrastructure sharing agreements and higher mobile termination rate (MTR) in February 2021.

Normalized General and Administrative^[1] (G&A) Expenses were up by 32.5% YoY in the quarter. This increase is mostly explained by: higher expenses with maintenance services as a result of the IT infrastructure migration to the Cloud, and by specialized consulting services for strategic projects. Compared to 1Q21, G&A was up by 3.8% due to in the increase in specialized services, as previously mentioned.

Cost of Goods Sold (COGS) totaled R$ 183 million in 2Q21 (+123.1% YoY), following the increase in Product Revenues from the higher handset sales volume, also benefiting from a weaker comparison basis in 2Q20. In the QoQ comparison, this line was up by 25.9% for the same reasons explained above.

In 2Q21, the Provisions for Doubtful Accounts (Bad Debt) were slightly up by 1.1% YoY. In the quarter, Bad Debt was mainly impacted by a recognition of Bad Debt from a wholesale customer. In absolute figures, Bad Debt came to R$ 161 million, accounting for 2.60% of TIM’s Gross Revenue.

Other Operating Expenses were up by 13.8% YoY in 2Q21, explained by higher expenses with labor contingencies and increased provisions for tax lawsuits. This line’s share over the total normalized Opex stood at 4.1% in 2Q21 (versus 4.1% in 2Q20).

Subscriber Acquisition Costs (SAC = subsidy + commissioning + advertising expenses) totaled R$ 58.0 per gross addition in 2Q21, up by 63.5% YoY, impacted by the higher selling and advertising costs.

^[1] General and Administrative Expenses were positively impacted by non-recurring item (+R$ 13.7 million) in 2Q21 related to specialized legal and administrative services.

FROM EBITDA TO NET INCOME

*EBITDA normalized according to the items in the Costs section (+R$ 13.7 million in 2Q21 and +R$ 2.6 million in 1Q20). Net income normalized by tax credit (-R$ 4.6 million in 2Q21).

EBITDA^[2] (Earnings before Interest, Taxes, Depreciation and Amortization)

DEPRECIATION AND AMORTIZATION (D&A) / EBIT

In 2Q21, D&A was up by 5.5% YoY, explained by increased Depreciation of 4G equipment and right of use related to larger lease agreement base, even though it was offset by lower software Amortization. In 6M21, D&A increased by 3.4% YoY, explained by the same reasons that impacted 2Q21 figures.

Normalized EBIT^[3] in 2Q21 grew 6.6% YoY, reflecting higher EBITDA growth, partially impacted by the increase in D&A. Normalized EBIT Margin ended the quarter at 15.4%, 0.6 p.p. down compared to 2Q20. Year to date, Normalized EBIT rose 9.4% YoY and Normalized EBIT Margin reached 14.5%, up 0.4 p.p.

^[2] EBITDA normalized according to items in the Operating Costs and Expenses section.

^[3] EBIT normalized according to items in the Operating Costs and Expenses section.

NET FINANCIAL RESULTS

Net Financial Results in 2Q21 were negative by R$ 36 million, representing an improvement of R$ 232 million compared to 2Q20. This difference is mainly related to:

INCOME TAX AND SOCIAL CONTRIBUTION

In 2Q21, Reported Income Tax and Social Contribution totaled R$ 45 million compared to -R$ 100 million in 2Q20. This improvement mainly stems from better comparison basis due to the IoE declared in 2Q21 and the positive impact from the reversal of Income Tax/Social Contribution provision recorded in 2009, due to the partial successful outcome of an administrative proceeding related to the merger of operational companies TIM Nordeste by TIM Celular, as mentioned before. On a Normalized basis, Income Tax/ Social Contribution totaled R$41 million compared to -R$100 million in the same period the previous year, for the reasons already explained above.

In 2Q21, the effective rate stood at 6.3% vs. -27.1% in 2Q20 (on a Normalized basis). In 6M21, the effective rate was -4.9% vs. -30.9% in 6M20, on a normalized basis, explained by the same reasons seen in 2Q21, in addition to the increased use of tax benefits in 6M21.

NET INCOME^[4]

^[4] Net Income normalized according to items in the Operating Costs and Expenses section.

CASH FLOW, DEBT AND CAPEX

*Normalized EBITDA according to the items in the Costs section (+R$ 13.7 million in 2Q21 and +R$ 2.6 million in 1Q20).

In 2Q21, EBITDA-Capex came to R$ 1,195 million, a decrease of 8.8% YoY, taking EBITDA-Capex over Net Revenues to 27.1% (vs 32.9% in 2Q20).

In an exercise to exclude the financial lease effects from these indicators, 2Q21 EBITDA was recalculated considering these lease agreements on operating expenses. Therefore, EBITDA-AL (After Lease) for the quarter would be R$ 1,615 million (+3.5% YoY) and EBITDA-AL minus Capex would sum up to R$ 709 million (-20.0% YoY).

CAPEX

Capex totaled R$ 906 million in 2Q21, up by 34.5% compared to 2Q20, mainly explained by the comparison basis that was impacted by project reassessment due to social distancing measures. Additionally, the company has begun to prepare its infrastructure for the integration of Oi’s Mobile assets.

Investments are still being allocated to infrastructure (88% of the total), mainly to projects in IT, 4G technology through 700MHZ, transport network and FTTH expansion (which received approximately 15.7% of 2Q21 total investments).

CHANGE IN WORKING CAPITAL

The Change in Working Capital was positive by R$ 40 million, compared to positive R$ 279 million in 2Q20, mostly due to the payment of Condecine 2021 fee in April.

Furthermore, it is important to note that, regarding Fistel fees, in 1Q20 their payment was postponed (about R$ 790 million) – usually due in March – to August 31, 2020. In 3Q20, we paid nearly R$ 300 million related to said taxes, related to Condecine and CFRP, negatively impacting Change in Working Capital and Cash Flow for that quarter. In the 6M21, the Company partially paid CFRP and Condecine fees in the amount of R$ 300 million. The remaining Fistel (TFF) amount of R$ 480 million for 2021 is still suspended, without a defined payment date (Financial Statements, Note 22).

DEBT AND CASH

Gross Debt in 2Q21 was R$ 12,307 million, up by R$ 1,950 million YoY. The current balance includes (i) leasing recognition in the total amount of R$ 8,186 million (related to the sale of towers, the LT Amazonas project and leasing contracts with terms exceeding 12 months, pursuant to IFRS 16); (ii) bank debt in the amount of R$ 4,226 million and (ii) hedge position^[5] in the amount of R$ 104 million (reducing gross debt).

At the end of 2Q21, financings (after hedge) totaled R$4,122 million, comprised of agreements with foreign private banks and fully hedged in local currency. The average cost of debt excluding leases was 4.3% p.y. in the quarter, up when compared to 3.4% p.y. in 2Q20.

In March 2021, TIM’s Board of Directors approved the Company’s financing plan. The approved financial strategy consists of contracting foreign loans in domestic or foreign currency – with exchange rate coverage – in the amount of up to R$4 billion, for the term of up to 4 years. In April 2021, the Company executed 2 contracts with foreign banks, in the total amount of R$1.072 billion.

In April, the Company received authorization from the Ministry of Communications to issue up to R$ 5.75 billion in incentive debentures, the highest approval ever made by the Government within the scope of the program. The contribution may be used to finance TIM's infrastructure project, which covers the evolution of the fixed and mobile network, including 5G, and the virtualization of the telecommunication network, with the purpose of increasing the quality and availability of services offered.

As part of the abovementioned project, in June, the Company completed the settlement of the 2^nd debenture issuance in the total amount of R$ 1.6 billion, maturing in June 2028. This is the Company’s first debentures offer to consider ESG aspects in its issuance, bringing benefits to both society and the environment, thus endorsing the goals of the Company’s Strategic Plan. Cost of debt is IPCA + 4.1682% p.y., subject to step-down adjustments that can reach a reduction of up to 0.25% p.y. if ESG goals are achieved. At the same time, the Company also contracted a swap to fully hedge interest rates risks, which the final rate was CDI+0.95%. Net funds from this issue will be allocated to finance fixed and mobile network implementation, expansion and modernization projects in different technologies, including 5G, with the purpose of placing TIM in the forefront in terms of service quality and availability.

^[5] The Derivatives position excludes the subscription bonus in C6 Bank capital – TIM S.A. Financial Statements, Note 37.

At the end of the quarter, Cash and Securities totaled R$ 7,125 million, an increase of R$ 3,824 million YoY.

The average cash yield was 3.9% p.y. in 2Q21, up compared to 2.9% p.y. in 2Q20, a result of better fund allocation and the last Selic rate increases.

In 2Q21, Net Debt totaled R$ 5,183 million, down by R$ 1,874 million compared to the same period of the prior year, when net debt was R$ 7,057 million. This reduction is explained by the stronger cash generation during the first half of 2021. Net Debt excluding leasing effects, Net Debt-AL, would reach
-R$ 3,003 million, in other words, a “net cash” position with an improvement of R$ 2,383 million compared to the same period of the previous year.

Net Debt/EBITDA ratio stood at 0.60x in the quarter. Excluding financial leases, Net Debt-AL/EBITDA-AL was -0.44x in 2Q21, compared to -0.09x in 2Q20.

QUARTERLY EVENTS AND SUBSEQUENT EVENTS

PARTNERSHIP BETWEEN TIM AND COGNA

On July 7^th, 2021, TIM S.A. informed its shareholders, the market in general and other interested parties that, jointly with Anhanguera Educacional Participações S.A. (“AESAPAR”), subsidiary of Cogna Educação S.A (“Cogna”), jointly referred as “Partners”, concluded the negotiations regarding a strategic partnership (“Partnership”) with the objective of developing combined offers with special benefits aiming the access to distance education through the Ampli platform.

The Partners highlight the innovative character of the agreement, by combining a digital learning platform developed in mobile-first concept, with the largest 4G infrastructure in Brazil. This is a powerful combination that will expand and encourage access to university courses and free courses for all TIM customers. This approach offers great potential to generate value for both companies through customer base growth and revenue growth.

The Partnership is aligned with the Customer Platform strategy that the Company has been working on since 2020. This strategy seeks to monetize the assets that TIM holds as a mobile operator through strategic partnerships that create value for our customers and for the company itself.

This agreement does not create a joint venture and, therefore, the Partners maintains the independence of their operations. Through a compensation mechanism based on objectives and depending on the evolution of the results of the partnership, TIM will become a minority shareholder of AESAPAR in a new company to be created as a result of the separation of assets from the Ampli platform (“Ampli Co”). The formation and operation of Ampli Co will be submitted to the competent authorities, in particular the Ministry of Education (MEC).

This equity interest can reach up to 30% of the new company’s capital and the subscription of shares must be previously approved by the Administrative Council for Economic Defense – CADE. In the defined plan, there is an expectation of seeking a future IPO (Initial Public Offering).

Operating and Marketing Performance

*2Q21 and 6M21 numbers as of May 2021.

MOBILE SEGMENT:

GENERAL MARKET^[6]

The mobile market reported growth of 8.2% YoY in 2Q21, reinforcing the positive base expansion, observed in the last quarter for the first time since 2015. In the past 12 months, postpaid net additions reached 15.7 million users, of which 66% were human postpaid lines. Prepaid reached 2.8 million new lines.

TIM

TIM ended 2Q21 with a total of 51.3 million users, reporting a slight 1.3% decrease in the period.

The postpaid base ended the 2Q21 with 22.2 million lines (+3.9% YoY), of which 81.9% refer to human postpaid lines. In the period, this segment’s mix over total base reached 43.2%, +2.2 p.p. YoY. At the end of the quarter, human postpaid reached 18.2 million lines (+4.0% YoY), with net additions of 694 thousand lines in the last 12 months. Monthly churn rate remained at lowest levels (3.0% in 2Q21), as recorded in the last quarters.

The M2M base ended the quarter with 4.0 million users (+3.7% YoY). In the last 12 months, net additions totaled 144k users.

In 2Q21, the prepaid base reached 29.2 million lines down by 5.0% YoY. The segment’s base posted churn volume lower than previous periods, 1.5 million in the last 12 months. The segment was also impacted by restriction measures at some locations during the quarter.

^[6] 2Q21 numbers as of May 2021.

The 4G base ended the quarter with 44.4 million users, once again accelerating its pace and resuming double-digit growth (+12.9% YoY). The 4G handset mix in the total human lines base reached its highest historical level, 94% (+12.2 p.p. YoY).

FIXED SEGMENT:

TIM Live ended the 2Q21 with 666k connections, maintaining the accelerated growth pace (+10.0% YoY). In the last 12 months, net additions reached 61k lines, and above 200 mbps speed plans were responsible for the period’s expansion dynamics. Higher-value plans, with speed above 100 mbps, accounted for 55% of the total base. The segment was negatively impacted by the COVID-19 pandemic in the quarter, especially in April until the federal government resumed the emergency allowance.

The network's rollout continued to accelerate, prioritizing the consolidation of already active clusters. Accordingly, total homes passed grew 38.3% YoY, with the total number of locations growing compared with the previous quarter (28 cities and 7 administrative regions of the Federal District).

Quality and Network

QUALITY AND CUSTOMER EXPERIENCE

For yet another quarter, efforts to simplify self-care and boost digital sales channels have generated positive results. In 2Q21, digital channel sales posted consistent results: pure postpaid sales were up by 28.2% YoY, while consumer Control increased by 4.8% YoY. Additionally, the digital recharge mix continued to speed up (+18.7 p.p. vs. 2Q20).

Accordingly, digital billing and payment mechanisms kept their growth pace throughout 2Q21. Invoices delivered through these channels posted a 16.7% YoY growth, with a base penetration of 78.2% (+8.5 p.p. YoY). Meanwhile, total customers digitally paying their invoices increased by 4.6% YoY compared to the same period the previous year, reaching a penetration of 76.7% (+3.8 p.p. YoY). Another convenience offered to TIM’s customers is the possibility to recharge and/or check balances and usage limits, as well as the opportunity to receive their invoices through WhatsApp.

The quality of our customer caring processes continues to be greatly important to the Company in the ongoing pursuit of efficiency. Therefore, we have developed mechanisms to simplify self-service, which continue to bring positive results. In the quarter, Meu TIM once again proved to be a fundamental tool to simplify caring processes – providing customers with greater transparency and control to manage their plans. The 20.9% YoY growth in the app’s monthly average of unique users in 2Q21 demonstrates the Company’s success in encouraging and offering functionalities of interest to customers through this channel. Furthermore, the 9.8% YoY decline in human interactions also corroborates to the channel’s importance, reducing dependency on call centers.

Another innovative initiative explored by the Company is the use of artificial intelligence at the customer service center. The use of this cognitive technology has transformed TIM’s automatic service into a new customer experience, which is more customized, diversified, and agile. Through this new approach consumer needs are predictively and automatically detected, creating corrective solutions and measures to the customer. The approach combines natural language voice, journeys according to each customer’s context, analysis of customers’ feeling and curatorship. Since its implementation in 2020, over 44 million calls have come through the cognitive IVR, of which 10 million only in 2Q21. We expect to boost the use of cognitive tools even further, by making new services available, in addition to 100% cognitive services for Broadband and Pós Concierge customers. Thus, we expect to reach 47 million cognitive services by the end of the year.

NETWORK DEVELOPMENT

For another quarter, the TIM reinforces its commitment to the enhancement of its services and continuous quality improvement to ensure the best user experience for its customers. Focus on the expansion and improvement of its network infrastructure remains a pivotal pillar in our business plan.

Therefore, Capex allocated to infrastructure projects (Network + IT) of approximately 90%, by using analytical tools to ensure efficient allocation of resources. Some of the most important initiatives:

Among the main actions and projects underway, which are focused on the modernization and enhancement of our infrastructure, we highlight:

Once again, TIM maintains the leadership in 4G coverage, reaching 4,277 cities or 96% of the country's urban population. Therefore, the Company continues its mission to offer the best 4G coverage to all Brazilian cities. Moreover, the 23% YoY growth in this technology’s network elements in the period reinforces the Company’s commitment to the evolution of the quality and capacity of mobile network infrastructure. As a result, 4G data traffic once again reached a high level ever in the quarter, accounting for approximately 91% of the total data volume (+4 p.p. YoY).

The expansion of fixed broadband coverage also evolved positively throughout the quarter, surpassing 3.8 million homes passed with FTTH, while FTTC ended June at 3.5 million units, totaling 6.6 million homes passed. In the quarter, FTTH also began commercial activities in the city of Taboão da Serra (SP) and in the Gama region, in the Federal District. Hence, TIM’s BL technology (FTTH + FTTC)^[7] is present in 30 cities plus 7 administrative regions in the Federal District.

In transport infrastructure, TIM reached nearly 111k km with fiber optic for backbone and backhaul, a 6.6% YoY increase, and in the FTTCity project reached 1,068 cities. This evolution continues to support the increase in traffic in both Mobile and Fixed services.

Finally, with 1,739 active Biosites at the end of 2Q21, the development of Biosite installation projects is also aligned with the company's corporate social responsibility values. These structures provide a solution for the densification of the mobile access network (antennas/towers) with an extremely low visual and urban impact. Biosites also contribute to the harmonization with the environment and urban infrastructure – having a multifunctional capability of aggregating telecommunications transmission, lighting, and security cameras – besides being cheaper and faster to install.

^[7] (+) Rio de Janeiro (RJ), São Gonçalo (RJ), Nilópolis (RJ), Nova Iguaçu (RJ), São João do Meriti (RJ), Duque de Caxias (RJ), São Paulo (SP), Mauá (SP), Poá (SP), Suzano (SP), Francisco Morato (SP), Franco da Rocha (SP), Diadema (SP), Guarulhos (SP), Salvador (BA), Lauro de Freitas (BA), Camaçari (BA), Feira de Santana (BA), Recife (PE), Olinda (PE), Jaboatão dos Guararapes (PE), Paulista (PE), Goiânia (GO), Aparecida de Goiânia (GO), Anápolis (GO), Manaus (AM), Belo Horizonte (MG), Betim (MG), Contagem (MG), Taguatinga (DF), Samambaia (DF), Ceilândia (DF), Águas Claras (DF), Guará (DF) and Candangolândia (DF).

Environmental, Social & Governance

2Q21 ESG HIGHLIGHTS

TIM has established a new and more ambitious target plan named ESG Plan, for the 2021-23 three-year period. Based on the ambitions assumed in the previous Industrial Plan (2020-2022), the Company introduces new goals related to a set of initiatives, which are part of its strategy, contributing to a consistent conjunction between ESG aspects, business operation and organizational accountability.

7 new goals were added to the 8 previously created and improved:

*Base year 2019.

ENVIRONMENTAL

SOCIAL

GOVERNANCE

To have access to the Environmental, Social & Governance quarterly Report, go to: http://www.tim.com.br/ri/ESG Quarterly Report.

Disclaimer

The consolidated financial and operating information disclosed in this document, except where otherwise indicated, is presented in accordance with the International Financial Reporting Standards (IFRS) and in Brazilian Reais (R$), in compliance with the Brazilian Corporate Law (Law 6,404/76). Comparisons refer to the second quarter of 2021 (2Q21), except when otherwise indicated.

This document may contain forward-looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of the Company's management. The words "anticipates,” "believes,” "estimates,” "expects,” "forecasts,” "plans,” "predicts,” "projects,” "targets" and similar words are intended to identify these statements, which necessarily involve known and unknown risks and uncertainties foreseen, or not, by the Company. Therefore, the Company’s future operating results may differ from current expectations and readers of this report should not base their assumptions exclusively on the information given herein. Forward-looking statements only reflect opinions on the date on which they are made and the Company is not obliged to update them in light of new information or future developments.

Attachments

Attachment 1 : Operating Indicators 

Attachment 1

TIM S.A.

Operating Ratios

*2Q21 and 6M21 numbers as of May 2021. 

Corporate structure

TIM S.A. (“TIM” “Company” and/or “Enterprise”) is a public limited company with Registered office in the city of Rio de Janeiro, RJ, and a subsidiary of TIM Brasil Serviços e Participações S.A. (“TIM Brasil”). TIM Brasil is a subsidiary of the Telecom Italia Group and held 66.65% of the capital of TIM S.A on June 30, 2021 (66.58% on December 31, 2020).

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

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

In December 2020, TIM’s Board of Directors, after analyzing the studies prepared and the non-binding proposals received, approved, in a meeting held on December 10, 2020, the incorporation of a company, as preparation for future segregation of assets and provision of infrastructure services for residential fiber optical of TIM S.A., called FiberCo Soluções de Infraestrutura Ltda.

In May 2021, FiberCo Soluções de Infraestrutura Ltda. had its corporate name changed to FiberCo Soluções de Infraestrutura S.A. (“FiberCo”).

Corporate Reorganization

On July 29, 2020, the Board of Directors of the Company approved the submission to the Extraordinary General Meeting of the proposed Corporate restructure of TIM Participações by TIM S.A.

The Extraordinary General Meeting was held on August 31, 2020, and approved, by a majority of votes, the takeover of TIM Participações by TIM S. A, in accordance with the protocol and justification of merger concluded between the administrations of the Companies on July 29, 2020.

As a result the Company’s Management proceeded with the merger on August 31, 2020, based on the net book assets of TIM Participações, in the amount of R$ 355,323.

The changes in TIM Participações’s equity between the date of the report (March 31, 2020) and the merger (August 31, 2020) were transferred, absorbed and incorporated into the operating income of TIM Participações S.A. (incorporated), as set forth in the protocol of incorporation. As a result of the merger, all operations of TIM Participações were transferred to TIM S.A., which succeeded it in all its assets, rights and obligations, universally and for all purposes of law. This transaction had no economic or tax impact and the incorporated goodwill will not be used for the purposes of any tax offsets.

This corporate reorganization aimed to provide greater efficiency and simplification of the organizational structure of the TIM Group, making the structure of internal controls more efficient. In addition, the corporate reorganization provides a better tax efficiency in future distributions of Interest on Equity, and also, greater integration of administrative and financial unities allowing a cut-off in operational costs and expenses, as well as improvement of synergies, which shall result in a more efficient operation. As a result from this transaction, there was no impact on the controlling and non-controlling shareholders.

After the merger, TIM S.A. started to be traded with the codes TIMS3 on B3 and TIMB on the NYSE.

For the purposes of presenting the comparative balance, TIM S.A.’s asset and financial information remains unchanged, meeting the concept of legal entity for the presentation of the individual and consolidated quarterly information.

Net assets on merger date on September 01, 2020 are summarized as follows:

(1) The Incorporated goodwill has the following breakdown:

The individual and consolidated quarterly information was prepared in accordance with accounting practices adopted in Brazil which include the resolutions issued by the CVM and the pronouncements, guidelines and interpretations issued by Comitê de Pronunciamentos Contábeis [Accounting pronouncements committee] (CPC) and the International Financial Reporting Standards (International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board (IASB) and show all relevant information specific to the quarterly information, and only this information, which is consistent with that used by management in its management. Additionally, the Company considered the guidelines provided for in Technical Guideline OCPC 07 - Evidencing upon Disclosure of General Purpose Financial-Accounting Reports in the preparation of its quarterly information. In this way, the relevant information specific to the quarterly information is being evidenced and correspond to those used by the management in its duties.

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

a. General criteria for preparation and disclosure

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

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

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

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

b. Functional currency and presentation currency

The currency of presentation of the quarterly information is the Real (R$), which is also the Company´s functional currency.

Foreign currency transactions 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 balance sheet date, informed by Banco Central do Brasil [Central Bank of Brazil]. Foreign exchange gains and losses linked to these items are recorded in the statement of income.

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

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

The Group’s strategy is focused on optimizing results, and from the corporate reorganization mentioned in Note 1, all the operating activities of the group are concentrated exclusively in TIM S.A. Although there are diverse activities, decision makers understand that the company represents only one business segment and do not contemplate specific strategies focused only on one service line. All decisions regarding strategic, financial planning, purchases, investments and investment of resources are made on a consolidated basis. The aim is to maximize the consolidated result obtained by operating the SMP, STFC and SCM licenses.

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

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

Intercompany transactions, as well as the balances and unrealized gains and losses in those transactions, are eliminated. The base date of the financial information used for consolidation purposes is the same for all the companies in the Group.

The comparative consolidated balances for June 2020 have not been presented, since the subsidiary FiberCo was only incorporated in December 2020. Thus, there are no consolidated balances in June 2020.

This quarterly information was approved by the Company's Board of Directors on July 26, 2021.

The following new standards/amendments were issued by the Accounting Pronouncement Committee (“CPC”) and International Accounting Standards Board (IASB), are effective for the year ended June 30, 2021.

·         Changes to CPC 15 (R1): Definition of business

The amendments to CPC 15 (R1) clarify that, to be considered a business, an integrated set of activities and assets must include, at least, an inflow of funds and a substantive process that together contribute significantly to the capacity to generate the outflow of funds. Moreover, it clarified that a business can exist without including all the inflows of funds and processes necessary to create outflows of funds. These amendments had no impact on the Company’s individual and consolidated quarterly information but may impact future periods if the Group enters into any business combination.

·         Changes in CPC 38, CPC 40 (R1) and CPC 48: Benchmark Interest Rate Reform

The amendments to Pronouncements CPC 38, CPC 48 and CPC 40 provide exemptions that apply to all hedge relationships directly affected by the benchmark interest rate reform. A hedge relationship is directly affected if the reform raises uncertainties about the period or the value of cash flows based on the benchmark interest rate of the hedged item or hedging instrument. These changes have no impact on the Company’s individual and consolidated quarterly information, as it does not have interest rate hedging relationships.

The amendments provide a new definition of material, stating that: “information is material if its omission, distortion or obfuscation can reasonably influence decisions that the main users of the general purpose quarterly information make based on these quarterly information, which provide financial information on entity’s specific report”. The amendments clarify that the materiality will depend on the nature or magnitude of the information, individually or in combination with other information, in the context of the financial statements. A distorted information is material if it could reasonably be expected to influence decisions made by primary users. These amendments had no impact on the individual and consolidated quarterly information, nor is it expected that there will be any future impact for the Company.

The revised pronouncement provides some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These changes did not affect the individual and consolidated quarterly information of the Company.

The amendments provide for the granting of benefits to lessees upon adoption of the guidelines of CPC 06 (R2) on the modification of the lease agreement, when accounting for the related benefits as a direct consequence of the Covid-19 pandemic.

As a practical expedient, a lessee may choose not to assess whether a benefit related to Covid-19 granted by the lessor is a modification of the lease agreement. The lessee who makes this option must account for any change in the lease payment resulting from the benefit granted in the lease agreement related to Covid-19 in the same way that it would account for the change by adopting CPC 06 (R2) if the change was not a modification of the lease agreement. 

The following new standards were issued by Comitê de Pronunciamentos Contábeis [Accounting pronouncements committee] (CPC) and the International Accounting Standards Board (IASB), but are not in effect for the period ended on June 30, 2021.

In May 2017, the IASB issued IFRS 17 - Insurance Contracts (a standard not yet issued by CPC in Brazil, but which will be codified as CPC 50 - Insurance Contracts and will replace CPC 11 - Insurance Contracts), a new comprehensive accounting standard for insurance contracts that includes recognition and measurement, presentation and disclosure. As soon as it comes into force, IFRS 17 (CPC 50) will replace IFRS 4 - Insurance Contracts (CPC 11), issued in 2005. IFRS 17 applies to all types of insurance contracts (such as life, non-life, direct insurance and reinsurance), regardless of the type of entity that issues them, as well as certain guarantees and financial instruments with discretionary participation characteristics. Some scope exceptions apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements of IFRS 4, which are largely based on local accounting policies in force in previous periods, IFRS 17 provides for a comprehensive model for insurance contracts, covering all relevant accounting aspects. The focus of IFRS 17 is the general model, covering the following:

• A specific adaptation for contracts with direct participation characteristics (variable rate approach).

• A simplified approach (premium allocation approach), mainly for short-term contracts. IFRS 17 is effective for periods beginning on or after January 1, 2023, requiring the presentation of comparative amounts. Early adoption is allowed if the entity also adopts IFRS 9 and IFRS 15 on the same date or before the first-time adoption of IFRS 17.

This standard does not apply to the Company.

·         Amendments to IAS 1: Classification of liabilities as current or non-current

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

• What a right to postpone settlement means;

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

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

• That only if a derivative embedded in a convertible liability is itself an equity instrument would the terms of a liability not affect its classification. Amendments are valid for periods started on January 1, 2023 and must be applied on a retrospective basis.

The Company currently assesses the impact that the changes will have on current practice and whether existing loan agreements may require renegotiation.

COVID-19 impacts

Since March 2020 a pandemic was declared by the World Health Organization due to the outbreak of the new Coronavirus (COVID-19). The main impacts and first cases were recorded in Brazil and in the world also in the first quarter of 2020.

The outbreak of COVID-19 developed rapidly in 2020 and continues until 2021. The measures taken to contain the virus greatly affected economic activity, including some impacts on the operating results and cash flows of the Companies in Brazil. Throughout 2020, lockdowns were decreed in several states in Brazil, lasting from March to June 2020.

In 2020, the Company has a robust infrastructure and is part of an extremely important segment in this period of crisis, essential for the population, government and health system.  After an internal analysis, there was no indication of impairment of assets or risks associated with the fulfilment of obligations, since the Company is not highly leveraged and still has credit lines available to be used in the event of a significant reduction in cash volume.

In 2021, the crisis worsened with an increase in the number of cases. Consequently, there was a need for new restrictive measures, including the closing of the trade, impacting the operation of stores. Said restrictions were implemented mainly in March in different cities in Brazil.

In June 2021, Brazil advanced its vaccination levels, so that there was a slight improvement in economic activities. We have not suffered any material impact on our operations so far. The Company continues to present positive results, and the main impact of the restriction measures was verified in the product sales line due to the closing of stores in the first quarter, an effect already normalized in the second quarter of 2021.

We continue assessing government responses, such as the progress of vaccination and economic performance, as well as possible impacts on the Company’s businesses. 

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

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

(a)       Impairment loss on non-financial assets

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

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

The main non-financial assets for which this assessment was made are goodwill recorded by the Company (Note 15) and its tangible and intangible assets.

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

Income tax and social contribution (current and deferred) are calculated according to interpretations of current legislation and CPC 32 / IAS 12. This process typically involves complex estimates to determine taxable income and temporary differences. In particular, the deferred assets on tax losses, negative basis of social contribution and temporary differences is recognized in proportion to the probability that future taxable income is available and can be used. The measurement of the recoverability of deferred income tax on tax losses, negative basis of social contribution and temporary differences takes the history of taxable income into account, as well as the estimate of future taxable income (Note 10).

(c)       Provision for legal and administrative proceedings

The legal and administrative proceedings are analyzed by the Management along with its legal advisors (internal and external). The Company considers factors in its analysis such as hierarchy of laws, precedents available, recent court judgments, their relevance in the legal system and payment history. These assessments involve Management’s judgment (note 25).

(d)       Fair value of derivatives and other financial instruments

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

(e)       Unbilled revenues

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

(f)       Leases

The Company has a significant number of the lease contracts in which it acts a lessee (Note 17), and with the adoption of the accounting standard IFRS 16 / CPC 06 (R2) – Lease, on 01/01/2019, certain judgments were exercised by Company´s management in measuring lease liabilities and right-of-use assets, such as: (i) estimate of the lease term, considering non-cancellable period and the period covered by options to extend the contract term, when the exercise depends only from the Company, and this exercise is reasonably certain; and (ii) using certain assumptions to calculate the discount rate.

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

(g)       Assets classified as held for sale (and related liabiliteis)

On May 5, 2021, TIM S.A. informed its shareholders and the market in general that, at a meeting of the Company’s Board of Directors held on the same day, an agreement between TIM S.A. and IHS Fiber Brasil - Cessão of Infrastructures Ltd. (“IHS”) was approved for the acquisition, by IHS, of an equity interest in FiberCo Soluções de Infraestrutura S.A. (“FiberCo”), an entity incorporated by the Company to segregate network assets and provide infrastructure services. Thus, the Company identified the assets and liabilities within the scope of the transaction that guarantee the sale of 51% of the infrastructure operation and the classification of these assets and liabilities in the “held for sale” group.

 The Board of Directors considered that said business met the criteria to be classified as held for sale at that date for the following reasons:

• FiberCo and the set of assets and liabilities that will be transferred to it as a prerequisite for the transaction are available for immediate sale and may be sold to a potential buyer at its current state;

• The measures required to complete the sale have started and are expected to be completed within one year as of the classification date;

• Preliminary negotiations with a potential buyer have already been carried out and the agreement was signed. The Company and IHS are currently only waiting approval from regulatory bodies, and said approval is expected to take place in the coming months.

For further details on the operation, see note 16.

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.

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

The annual average remuneration of the Company's investments related to CBD's and Repurchase and Resale Agreements is 101.35% (101.24% on December 31, 2020) of the variation of the Interbank Deposit Certificate – CDI. 

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

The balances on June 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

(1) On December 2017, the Company, with the aim of using tax deductibility benefit for income tax and social contribution purposes, started investing in the National Film Industry Financing Fund (FUNCINE). The average remuneration in 2021 is -0.15% p.a. (-3.34% p.a. on December 31, 2020).

(2) “Fundo Soberano” is composed only of federal government bonds. The average remuneration in 2021 is 88.77% (87.71% on December 31, 2020) of the variation of the Interbank Deposit Certificate – CDI.

(3) In August 2017, the Company invested in open FIC's (Quota Investment Fund). Funds are mostly made up of government bonds and papers from top-tier financial institutions. The average remuneration in 2021 of the FIC's was 125.95% (112.72% on December 31, 2020) of the variation of the Interbank Deposit Certificate – CDI. Government bonds are fixed income financial instruments issued by the National Treasury to finance the activities of the Federal Government.

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

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

(6) It is represented by: Debentures, FIDC, commercial notes, promissory notes, bank credit note.

The balances on June 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

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 is close to the book value recorded on June 30, 2021 and December 31, 2020.

The average rate considered in calculating the present value of accounts receivable recorded in the long term is 0.19% (0.22% on December 31, 2020).

The movement of the provision for loss on expected settlement credits, accounted for as an asset reduction account, was as follows:

The aging of accounts receivable is as follows:

The balances on June 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

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

The balances on June 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

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

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

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

(iii) In May 2021, we received the final and unappealable decision for a lawsuit involving the repetition of ICMS undue payments in Santa Catarina, in the amount of R$ 52 million, increasing the asset account “Long Term ICMS recoverable - Other”, in addition to having a positive impacting on net and financial income.

 The balances on June 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

(i) Income tax and social contribution amounts are mainly related to other income tax and social contribution credits from previous years, whose current estimated term for use is later than 12 months.

(ii) The Recoverable PIS/COFINS amounts mainly refer to credits from a legal proceeding filed by TIM Celular S.A. (ultimately merged into TIM S.A., as well as TIM S.A. itself), with a favorable final decision in Higher Courts which discussed the exclusion of the ICMS from the PIS and COFINS calculation bases. According to the Company’s internal assessment, we expect to use these credits by the end of the year 2022.

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. The total amount recorded in 2019 related to these credits was R$ 3,023 million, of which R$ 1,795 relates to principal and R$ 1,228 million was monetary restatement.

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.

In 2020, TIM had utilized credits arising from the process of exclusion of ICMS from the calculation bases of PIS and COFINS, for payments of federal taxes, in the total amount of R$ 1,516 million. In the first and second quarters of 2021, total offsetting of R$ 466 million was made for said PIS and COFINS credits.

In May 2021, the Brazilian Supreme Court (STF) closed the discussion regarding the credit rights of the Companies, defining that the exclusion of ICMS from the PIS and COFINS calculation basis is valid from March 15, 2017, the date when the general repercussion thesis (Topic 69) was established in the judgment of Special Appeal (RE) No. 574706.

Considering that the judges ratified that the ICMS not included in the PIS/COFINS calculation basis is highlighted in the invoice, we confirm that the procedures adopted by TIM S.A., when providing for PIS/COFINS credits, are adequate.

In June 2021, after partial use of TIM S.A credits, in the amount of R$ 2,044 million, it is still recorded in the amounts of R$ 1,085 million, of which R$ 712 million as principal and R$ 374 million as inflation adjustments.

The balances on June 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

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 basis 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.

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 Tax Council and Statutory Audit Committee and approved by other Management bodies, indicate the likelihood of the future realization of those tax credits.

The balances of deferred income tax assets and liabilities are presented at net value in balance sheet when there is the legal right and the intention of offsetting them upon calculation of current taxes, in general related to the same legal entity and the same tax authority. Thus, deferred tax assets and liabilities belonging to different entities are in general shown separately, not at their net amounts.

On June 30, 2021 and December 31, 2020, the prevailing tax rates were 25% for income tax and 9% for social contribution. In addition, there is no statute of limitation in regard to the income tax and social contribution carried forward losses, which it can be offset by up to 30% of the taxable profit reached at each fiscal year, according to the current tax legislation.

The amounts recorded are as follows:

(1) Mainly represented by the Fistel fee for the financial years 2020 and 2021. The payment of the TFF for the year 2020 was postponed to August 2020, based on Provisional Measure No. 952, of April 15, 2020. Currently, the TFF rates for 2020 and 2021 had their payments suspended due to a process opened by the Company. See Note 22 for details.

(2) Represented by the goodwill on the business combination of companies TIM Fiber RJ and SP acquired by TIM in 2012. In June 2021, we had the reclassification of a portion of this goodwill and related deferred taxes to the held-for-sale group due to the sale transaction described in Note 16.

(3) as of the 1Q20, TIM S.A. excludes the portion of acceleration of depreciation of moveable assets belonging to fixed assets from the calculation basis of the IRPJ and CSLL, due to their uninterrupted use in three operating shifts, supported by technical expert report, as provided for in Article 323 of the RIR/2018, or by the adequacy to the tax depreciation provided for in IN 1700/2017. Such tax adjustment generated a deferred liability of R$ 391.5 million until June 30, 2021 (R$ 266.5 million up to December 31, 2020) and applied as of January 1, 2020.

Expectation of recovery of tax credits

The estimates of recoverability of tax credits were calculated taking into consideration financial and business assumptions available on June 30, 2021.

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

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

The Company used credits from the negative basis of social contribution in the amount of R$ 88,445 during the year up to June 30, 2021 (R$ 325,583 on December 31, 2020, including tax losses).

The balances on June 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.