TIM (TIMB) Risk Analysis

The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, European countries, as well as in other Latin American and emerging market countries. Although economic conditions in Europe and the United States may differ significantly from economic conditions in Brazil, investors' reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Additionally, crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including our securities. This could adversely affect the market price of our securities, restrict our access to capital markets and compromise our ability to finance our operations in the future on favorable terms, or at all. In the recent past, there was an increase in volatility in all Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets, the increasing risk aversion to emerging market countries, and uncertainties regarding Brazilian macroeconomic and political conditions. These uncertainties adversely affected us and the market value of our securities. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported, with Russia subsequently recognizing the independence of the self-proclaimed republics of Donetsk and Luhansk in the Donbas region of Ukraine. Since then, global markets have been experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between these countries. Although the length and impact of the ongoing military conflict are highly unpredictable, the conflict in Ukraine has led and could further lead to market disruptions. Additionally, governments such as the United States and many other countries have imposed economic sanctions on certain industry sectors, corporate and banking entities, parties and individuals, including politicians, in Russia, Belarus and the regions of Donetsk and Luhansk, as well as enhanced export controls on certain products and industries. These sanctions, or even the threat of further sanctions, could result in Russia taking countermeasures or retaliatory actions which may lead to further market disruption, which could negatively impact our businesses and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, and between Israel and the Hamas and Hezbollah extremist groups. On October 7, 2023, Hamas militants and members of other terrorist organizations infiltrated Israel's southern border from the Gaza Strip and conducted a series of terror attacks on civilian and military targets. Following the attack, Israel's security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel with continued rocket and terror attacks from Hamas. Any hostilities, terrorist activities, political instability or violence in the region could adversely affect our operations and results of operations and adversely affect our businesses and operations. More recently, on late November, the tensions between Venezuela and Guyana regarding a territory called Essequibo started to draw attention. The region, rich in minerals and precious stones, has been under the control of Guyana since the country became independent in 1966. Before that, it was dominated by the United Kingdom, since the mid-19th century. The region is known in Venezuela as Guyana Essequiba, or simply, Essequibo, and currently appears on the country's official maps as "Zona en Reclamación", that is, a territory that is being claimed. Under Guyanese administration, Essequibo includes areas of six provinces, two of which are entirely located there and three have most of their surfaces located in the region claimed by Venezuela. Furthermore, Essequibo includes an important portion of the Guyanese coast, where enormous oil reserves were discovered a few years ago and which Guyana is already exploring, in partnership with major oil around the world. In case of any military escalation between Venezuela and Guyana the entire region could be impacted. In addition, we continue to be exposed to disruptions and volatility in the global financial markets because of their effects on the financial and economic environment, particularly in Brazil, such as a slowdown in the economy, an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit availability. Disruption or volatility in the global financial markets could further increase negative effects on the financial and economic environment in Brazil, which could have a material adverse effect on our business, results of operations and financial condition.

Telecom Italia S.p.A., or Telecom Italia, as Licensor, and TIM S.A. and Instituto TIM as Licensees, entered into a trademark license agreement, or the Trademark License Agreement, where Telecom Italia granted the Licensees a non-exclusive and non-transferable license to several trademarks (including the TIM trademark) to: (i) promote and render Licensees' services, including co-branded services; (ii) use the trademarks as domain names of websites owned by the Licensees, dedicated to the promotion and/or the rendering of the Licensees' services; (iii) use the TIM trademark in events, campaigns, commercial partnerships, sponsorship projects and other activities in order to promote Licensees' services; and (iv) use "TIM" as part of Licensees' corporate names. The Trademark License Agreement is limited to Brazil and valid until December 31, 2026, unless terminated earlier. Telecom Italia, who owns the rights to the "TIM" trade name, may prevent us from using the TIM trademark by termination of the Trademark License Agreement. The loss of use of the trademark "TIM" may have a material adverse effect on our business and operating results.

We face various cyber-security risks that could result in business losses, including, but not limited to, contamination (whether intentional or accidental) of our networks and systems by third parties with whom we exchange data, equipment failures, unauthorized access to and loss of confidential customer, employee and/or proprietary data by persons inside or outside our organization. We are also exposed to cyber-attacks causing systems degradation or service unavailability, the penetration of our information technology systems and platforms by malicious third parties, and infiltration of malware (such as computer viruses) into our systems. Cyber-attacks against companies have increased in frequency, scope and potential harm in recent years. Further, the perpetrators of cyber-attacks are not restricted to particular groups or persons. These attacks may be committed by our employees or third parties operating in any region, including jurisdictions where law enforcement measures to address such attacks are unavailable or ineffective. We may not be able to successfully protect our operational and information technology systems and platforms against such threats. There can be no assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects. Similarly, there can be no assurance that we or our third-party providers and other contractors will be successful in protecting our customers' personal data and other data that is stored on our and their systems. Further, as cyber-attacks continue to evolve, we may incur significant costs in the attempt to modify or enhance our protective measures or investigate or remediate any vulnerability. The inability to operate our networks and systems as a result of cyber-attacks, even for a limited period of time, may result in significant expenses to us and/or a loss of market share to other communications providers. The costs associated with a major cyber-attack could include expensive incentives offered to existing customers and business partners to retain their business, increased expenditures on cyber-security measures and the use of alternate resources, lost revenues from business interruption and litigation. If we are unable to adequately address these cyber-security risks, our operating network and information systems could be compromised, which would have an adverse effect on our business, financial condition, reputation and results of operations. In order to mitigate such risks, we are currently adopting ISO 27001 standard best practices and obtained the certification in November 2022. Additionally, due to the Russia-Ukraine conflict, there have been publicized threats to increase hacking activity against the critical infrastructure of any nation or organization that retaliates against Russia for its invasion of Ukraine. Any such increase in such attacks on our third-party service providers or other systems could adversely affect our network systems or other operations. We have measures in place that are designed to detect and respond to such cyber-attacks and data security incidents, but there can be no assurance that our efforts will prevent or detect such cyber-attacks and data security incidents.

Our business is substantially affected by the tax regime in Brazil on telecommunications goods and services, as disclosed in detail in "Item 4. Information on the Company-B. Business Overview-Taxes on Telecommunications Goods and Services." In recent years, there have been several changes to Brazilian tax laws and their interpretation, which has created uncertainty for our business in how it calculates and complies with the relevant tax burdens. Further changes in tax regulations, such as a possible tax reform previously announced by the Brazilian Federal Government, could impact our financial assets and liabilities as well as our pricing, which could have a material adverse effect on our business, financial condition and results of operations. In 2023, the Brazilian Federal Government experienced a primary deficit of approximately R$230 billion, equivalent to 2.1% of the GDP. This indicates that the Brazilian Federal Government expenses surpassed the total revenues. Additionally, the budget for the year 2024 has set a target of a zero primary deficit, signaling an effort to increase tax revenue in order to fulfill the plan. In the topics below, there is a list with recent tax changes that could potentially have adverse impacts on the taxes applicable to our business and our prices. In order to limit the ability for state governments to undertake aggressive taxation, the Brazilian Federal Constitution prescribes that the ICMS can be variable, according to the essentiality of the goods and services. As such, the most essential goods and services should generally have lower rates than luxurious goods and services. Accordingly, in December 2021, the Brazilian Supreme Court also ruled that telecommunications services must be taxed at the general ICMS rate provided for in each state's law. In the leading case, taxpayers required recognition of the unconstitutionality of the rate of 25% levied on the supply of communication services in the State of Santa Catarina where the general rate is 17%. The Brazilian Supreme Court decided that communication services should be taxed at the general rate and softened the effects of this decision on the state by providing that it becomes effective only in 2024. Despite this decision, the Federal Congress enacted, on June 2022, Complementary Law No. 194/2022, which provides that communications and other activities, such as fuels, natural gas, electricity and public transportation, are essential goods and services, and, consequently, limited the ICMS levied on such transactions to the minimum tax rate of each State, which varied at the time from 17% to 18%. Therefore, the imposition of ICMS rates higher than the general rates of each State for the goods and services was prohibited by law from June 2022 onwards. Due to this reduction, states were expected to have a significant tax collection decrease by the end of 2022, estimated at R$33.5 billion. In order to address and prevent the expected loss, a study by COMSEFAZ, a council of state finance secretaries, recommended state governments raise their general ICMS rate by 4 percentage points from 2023 onwards. In the same cases, the COMSEFAZ study also recommended the ICMS general rate increase of 7 percentage points. As a result, in 2022, many states have elected to raise the ICMS general rate effective from 2023 as a way to offset their otherwise reduced tax collection. In some states, the general rate of the ICMS has been raised to 22%. The impact of this reduction on our business cannot currently be accurately measured due to a number of variables, such as customer base, future market and, price. In 2023, between October and December, fourteen States approved laws changing the ICMS rate applicable for telecommunication services effective from 2024. Eight States raised rates by around 2%. Other six States, according with the Brazilian Supreme Court's decision stating that telecommunications services must be taxed at the general ICMS rate, passed laws reducing the ICMS. Also in 2022, Complementary Law No. 190/2022 was enacted to regulate the ICMS levied on interstate operations with final consumers or non-ICMS taxpayers. On interstate sales to final consumers, the ICMS should be split between the state of origin and state of destination, as follows: (a) to the state of origin, the ICMS is calculated with the interstate rate (4%, 7% or 12%); and (b) to the state of destination, the ICMS is calculated based on the difference between the interstate rates used in the transaction and the rate applicable to internal transactions in the state of destination (usually from 17% to 21%), also known as ICMS DIFAL. According to this law, the ICMS DIFAL should be determined based on a double basis calculation. For us, it should mostly impact our fixed assets acquisitions and, although it should represent an increase in the cash out, the additional tax should be mainly recovered as a credit input on a monthly basis throughout the following four years. In relation to other taxes, there were some relevant changes regarding the Federal Excise Tax (IPI). In February 2022, the Government issued a decree reducing the tax by 25% on average for several products sold in Brazil. In April, a new decree was enacted, increasing the IPI reduction to 35%, except for products produced in the Manaus Duty-Free Zone ("ZFM"). In 2023, these measures were kept. The other relevant change in 2022 refers to PIS and Cofins. In December of 2022, the Brazilian Federal Revenue Office published the Normative Instruction No. 2,121/2022 ("IN No. 2,121/2022"), regulating the PIS and COFINS social contributions. In essence, IN No. 2,121/2022 – which replaced IN No. 1,911/19 – consolidated the new guidelines on ascertainment, inspection, collection and administration of the contributions for: (i) PIS/Pasep; (ii) Contribution for the Financing of Social Security (COFINS); (iii) PIS/PASEP-Import; and (iv) COFINS-Import. Furthermore, on December 30, 2022, Decree No. 11,322/22 reduced by half the PIS/COFINS rates levied on financial income earned by companies subject to the non-cumulative regime. The rates changed from 0.65% and 4% to 0.33% and 2%, respectively. According to the Decree, the reduction would take effect from January 1, 2023. However, on January 2, it was revoked by the newly inaugurated Government, reestablishing the PIS and Cofins rates levied on financial income to its original values. From a federal tax perspective, at the end of 2022, there were new relevant tax legislation enacted, including Provisional Measure No. 1,152 ("MP No. 1,152/2022"), which changed the legislation on IRPJ and CSLL, providing for new transfer pricing rules. MP No. 1,152/2022 aims to align the Brazil's rules with international standards and results from a process aimed at adapting Brazilian standards to those recommended by the Organization for Economic Cooperation and Development (OECD). To this end, there was an amendment to the arm's length principle and changes to transfer pricing rules which used to be exclusive to Brazil. This Provisional Measure was converted into Law No. 14,596, dated as of June 14, 2023. This new law expressly incorporated the arm's length principle into the Brazilian legal system. In addition, the new regulation reformulates the current system, abandoning the fixed-margin Benchmark calculation in favor of comparability tests, which better approximate to the "arm's length" principle incorporated into the Brazilian legal system with the new law mentioned above. This principle establishes that the Benchmark calculation should consider the relationships between independent parties in comparable transactions. This new regime must be complied mandatorily starting on 2024, or voluntarily starting on 2023, for taxpayers who wish to anticipate the effects of the new law. The regulation of the law will be issued by the Special Secretariat of the Federal Revenue of Brazil in the form of a Normative Instruction that will be updated periodically to reflect the needs for additional practical guidance and clarification considerations. As of now, we have the first normative instruction published on September 29, 2023, the Normative Instruction No. 2,161/23. Brazilian Tax Reform on Consumption was enacted on December 20, 2023, by the Brazilian Congress through Constitutional Amendment No. 132/2023. This reform provides significant changes in the current tax system, changing the indirect taxation into two new taxes: (i) a new dual tax called "IBS" (that substitutes "ICMS" and "ISS") and (ii) "CBS" (that replaces "PIS" and "COFINS"). It was also created a new tax called IS that partially replaces the current "IPI", which will be levied on the extraction, production, sale or import of goods and services considered harmful to human health and the environment. There will be a transition period, effectively starting in 2026, in which the tax rates for IBS and CBS will be reduced for a period, increasing trough years, and a new methodology to offset credits and other matters related to the "old" taxes will take place, as detailed below. With all these changes, PIS/COFINS are expected to be totally discontinued by 2027, and ICMS and ISS are expected to be fully replaced by 2033, pursuant to the following schedule: - 2026: rates of 0.9% of CBS and 0.1% of IBS can be offset against PIS/COFINS;- 2027: implementation of CBS, discontinue of PIS/COFINS and IPI rates reduced to zero (except ZFM, which will remain with positive rates);- 2029 to 2032: proportional levy/increase of the IBS rate and proportional extinction of ICMS and ISS; and - 2033: end of the transition period, when the new system comes into full effect. These new taxes will be regulated by Complementary Laws and the tax rates will be defined by the Senate before the transition period. The other relevant change from a federal tax law perspective was that the Executive Branch completely modified the current system of exemption from subsidies for investment in the country with the revocation of article 30, of Law No. 12,973/14, as well as the provisions of Law No. 10,637/02 and Law No. 10,833/03, on August 30, 2023, through Provisional Measure No. 1,185. As a result, such subsidy revenues are normally taxed by the Corporate Income Tax (IRPJ), the Social Contribution on Net Profit (CSLL), the Contribution for Social Security Financing (COFINS) and contributions to the Social Security Program. Social Integration (PIS). On the other hand, the new legal system allows the appropriation of tax credits to be used to offset the taxpayer's own debts to the Brazilian Federal Revenue Service (RFB) or reimbursed in cash. The application of this mechanism depends on prior authorization from the Federal Revenue, which will be granted after investments have been made in the enterprise that is intended to qualify to receive the tax incentive. The project to convert the above-mentioned Provisional Measure into law was approved by the Brazilian Congress on December 15, 2023, Law No. 14,789 which inaugurates a new tax treatment system for subsidies at the federal level. It is important to highlight that the bill that was approved innovated in relation to the bill originally proposed by changing the legal treatment rendered to taxation of interest on equity ("IoE"). The bill made the institute more restrictive by providing, for example, that positive variations in net equity resulting from corporate acts between dependent parties, which do not involve the effective inflow of assets to the legal entity, will not be considered, as disclosed in detail in "Item 10. Additional Information––E. Taxation––Brazilian Tax Considerations-Distributions of Interest on Capital". These changes may represent a potential reduction in deductibility limit, for the CIT base. On December 28, 2023, the Provisional Measure No. 1,202 was issued and among other provisions, aims to establish a new legal framework limiting the offsetting of credits resulting from a final court decision with a value equal to or exceeding R$10 million. This measure, set to take effect in 2024, aims to boost tax collection by restricting the use of credits from final court decisions for offsetting taxes. The specific duration for which the credit can be offset will be determined in accordance with the regulations. Furthermore, the text may change when submitted to Congress.

We face competition throughout Brazil from many providers in the personal communications service ("PCS"), market. We compete with providers of mobile telecommunication, VoIP services ("Voice over Internet Protocol"), and landline telecommunications services – including by bundling voice and data to customers in a single offer. Due to this increasing competition, we may incur higher advertising and commercial costs as we attempt to maintain or expand our market share. Other than TIM, the following main competitors also hold authorizations to provide PCS with national coverage: Claro S.A., under the brand name Claro and Telefônica Brasil S.A., under the brand name Vivo ("Vivo"). Moreover, all PCS providers with national coverage offer third generation, or 3G, and fourth generation, or 4G, fifth generation, or 5G mobile telecommunications network technology, reducing differentiation. With the recent acquisition of certain assets of Oi Móvel by TIM, Vivo and Claro (the "Oi Transaction"), we believe that the likelihood of further consolidations in the Brazilian telecom market among the main competitors is remote, but if further consolidations driven by our main competitors were to occur, those consolidations may favor their strategic advantage with increased market power and access to greater financial resources, thereby weakening our market position. We also expect to face increased competition from other services outside the telecommunications industry. Technological changes, such as the development, roll-out, and improvement of 4G and 5G mobile networks, may create new revenue streams but also hinder traditional services, introducing additional sources of competition, as is already the case with services like VoLTE calls, messages and SMS. These OTT communication apps are often free of charge (i.e., no subscription fee), accessible by smartphones, and usually allow their users to have access to potentially unlimited messaging and voice services over the Internet, bypassing traditional and more profitable voice and messaging services. As a result, voice traffic is migrating to data and offers from almost all competitors have started to include unlimited voice, thereby accelerating commoditization. These and other factors, including the regulatory and tax asymmetry, are responsible for the increase in the competitive pressure we are facing in the mobile market. OTT application service providers also leverage existing infrastructures and generally do not operate capital-intensive business models associated with traditional mobile network operators like TIM. Technological developments have led to significant improvements in the services provided by OTT applications – particularly in speech quality delivered by data communications apps, strengthening their positioning and relevance as competitors. In addition, providers with strong brand capability and financial strengths have turned their attention to the provision of OTT application services. In the long term, if non-traditional mobile voice and data services or similar services continue to increase in popularity, as they are expected to do, and if we and other mobile network operators are not able to address this competition, this could contribute to further declines in mobile monthly average revenue per user ("ARPU"), and lower margins across many of our products and services, thereby having a material adverse effect on our business, results of operations, financial condition and prospects. OTT service providers hold most of the content, the means to create it and the distribution channel. Together with these resources they dedicate themselves to creating new ways for their customers to interact with and consume content. As a result, it can be challenging for network operators, such as ourselves, to design value-added services that are beneficial to our customers. In addition to technological, we may face other hurdles to offering value-added services, such as regulation. Moreover, considering our fixed broadband business, we observe rising competition from smaller players aiming to attract customers towards fiber optics. This may intensify market competitiveness, elevating our churn rates. Additionally, we expect that the 3.5GHz rights that were acquired by regional providers may provide them with an opportunity to become mobile network operators ("MNOs"). We expect that new products and technologies will be developed frequently and that those already established will be in continuous evolution, implying a variety of potential consequences for us. These new outcomes may, in the best scenario, reduce the price of our services by providing lower-cost alternatives or, in the worst scenario, render our products and services obsolete, requiring significant investments in new technologies. If such changes occur, our main competitors in the future may be new participants in the market without the burden of an installed older infrastructure. The amount of investment needed to upgrade our premises and to stay effectively competitive could be significant. Rising competition may increase our churn rate and could continue to adversely affect our market share and margins. Our ability to compete successfully will depend on the effectiveness of our marketing efforts and our ability to anticipate and adapt in a timely manner to developments in the industry, including the technological changes and new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors. It is difficult to predict which of many possible factors will be important in maintaining our competitive position or what expenditures will be required to develop and provide new technologies, products or services to our customers. If we are unable to compete successfully, our business, financial condition and results of operations will be materially adversely affected.

We rely on various vendors to supply network equipment, mobile handsets and accessories necessary for our business. These suppliers may, among other things, delay delivery periods, increase their prices, limit the amounts they are willing or able to supply to us, or suffer disruptions in their own supply chains. If these suppliers are unable or unwilling to provide us with equipment or supplies on a regular basis, we could face difficulties in carrying out our operations, which could negatively affect our results of operations and limit our ability to execute our agreements. Geopolitical, sanitary, financial and sanctions aspects, among others, could cause an interruption of materials and services supply. Supplier exclusivity or dependence increases exposure to risk. Interruption can impact not only the acquisition of new materials and services, but also the maintenance of existing equipment and operations. We rely on certain telecommunications providers and partners, through contractual arrangements, to supply key infrastructure and other services. Termination, non-renewal and/or interruption in negotiation of those agreements, may have a material adverse effect on our business. ANATEL permits such agreements between telecommunications providers in order to avoid unnecessary duplication of networks and infrastructure, and to lower costs and increase the reach of telecommunication services in Brazil. Some (non-exhaustive) examples of these agreements include: - SWAP agreements (exchange of network capacity or assets between operators);- Indefeasible Rights of Use (IRU);- Lease of circuits (e.g., EILD, IP Peering, IP Transit and Satellite bandwidth/capacity);- Co-sites deals with other operators and tower companies;- Rights of use with private companies and public authorities;- Interconnection and co-billing; and - RAN Sharing agreements among TIM and other companies. For detailed information on these contracts see "Item 4. Information on the Company-B. Business Overview-Site-Sharing and Other Agreements". Furthermore, the constant changes in the telecommunications industry, such as the growth of broadband, may result in a limited supply of equipment essential for the provision of services. The restrictions on the number of manufacturers imposed by the Brazilian government for certain inputs pose certain risks, including susceptibility to currency fluctuations and the imposition of customs or other duties for those inputs which are imported. Inputs produced domestically are available from a limited number of domestic suppliers, and accordingly we are highly dependent upon their ability to accurately forecast domestic demand and manage inventory. The need to hire many key suppliers requires complex deals, detailed and timely analysis of contractual documents and an integrated, end-to-end management process. The potential positive impact of 5G networks on multiple industries, specifically the optimization of energy usage; cloud computing; ultrafast broadband; internet of things (IoT); innovation, including self-driving cars, transportation; agribusiness; education; health; and factory equipment. The necessary features for a company to benefit from the 5G network supply chain are software-based, and our supply chain is increasingly based on cloud computing and software. Discussions regarding data safety of equipment provided by Chinese suppliers could have side effects across the global ICT sector, also significantly affecting our supply chain, infrastructure deployment and costs, and impacting the future of the whole industry.