VIV Telefonica Brasil SA

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

For the month of March, 2015

Commission File Number: 001-14475

TELEFÔNICA BRASIL S.A.

(Exact name of registrant as specified in its charter)

TELEFONICA BRAZIL S.A.

(Translation of registrant’s name into English)

Av. Eng° Luís Carlos Berrini, 1376 - 28º andar

São Paulo, S.P.

Federative Republic of 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:

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):

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):

Explanatory Note:  With reference to the proposed acquisition (the “Acquisition”) by Telefônica Brasil S.A. (“Telefônica Brasil”) of Global Village Telecom S.A. (“Operating GVT”) and GVT Participações (“GVTPar” and together with Operating GVT, “GVT”), Telefônica Brasil is furnishing this Report on Form 6-K, which includes the historical audited consolidated financial statements of GVTPar as of and for the years ended December 31, 2014 and 2013.

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Forward-Looking Statements:

This communication contains forward-looking statements. These statements are statements that are not historical facts, including statements regarding the outlook and expectations of Telefônica Brasil and GVT, business strategies, future synergies and cost savings, future costs and future liquidity. The words “expects,” “believes,” “estimates,” “plans,” “anticipates,” “may,” “will,” “should,” “could,” “target,” “goal” and similar expressions, when used in relation to Telefônica Brasil and GVT, are intended to indicate forward-looking statements. These statements reflect the current outlook of the management of Telefônica Brasil and GVT and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, operational factors, corporate approvals and other factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations. All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements set forth in this paragraph. Forward-looking statements speak only as of the date they are made. Except as required under the U.S. federal securities laws and the rules and regulations of the SEC or of regulatory authorities in other applicable jurisdictions, we do not have any intention or obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking statements. You are advised, however, to consult any further disclosures Telefônica Brasil or GVT makes on related subjects in reports and communications Telefônica Brasil or GVT files with the SEC.

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SIGNATURE

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

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TELEFÔNICA BRASIL S.A.

Exhibit Index

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Exhibit 1

GVT Participações S.A.

Consolidated financial statements

December 31, 2014

GVT Participações S.A.

Consolidated  financial statements

December 31, 2014 and 2013

Contents

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Independent auditors’ report on the financial statements

To the Board of Directors and Shareholders of

GVT Participações S.A.

Curitiba-PR

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of GVT Participações S.A. (“Company”) and its subsidiaries, which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board — IASB and the accounting practices adopted in Brazil (BR GAAP); this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of GVT Participações S.A. (“Company”) and its subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board — IASB and the accounting practices adopted in Brazil (BR GAAP).

Curitiba, February 25, 2015

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GVT Participações S.A.

Consolidated statements of financial position at December 31, 2014 and 2013

(In thousands of reais, unless otherwise indicated)

See the accompanying notes to the financial statements.

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GVT Participações S.A.

Consolidated statements of income

Years ended December 31, 2014 and 2013

(In thousands of reais, unless otherwise indicated)

See the accompanying notes to the financial statements.

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GVT Participações S.A.

Consolidated statements of comprehensive income

Years ended December 31, 2014 and 2013

(In thousands of reais, unless otherwise indicated)

See the accompanying notes to the financial statements.

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GVT Participações S.A.

Consolidated statements of changes in equity

Years ended December 31, 2014 and 2013

(In thousands of reais, unless otherwise indicated)

See the accompanying notes to the financial statements.

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GVT Participações S.A.

Consolidated statements of cash flows — indirect method

Years ended December 31, 2014 and 2013

(In thousands of reais, unless otherwise indicated)

See the accompanying notes to the financial statements.

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GVT Participações S.A.

Consolidated  financial statements

Notes to the financial statements

(In thousands of reais)

1                 Operations

GVT Participações S.A. (the “Company” or “GVT Participações”) is engaged in the holding of interests in other companies, both domestic and foreign, as partner, shareholder or quotaholder. The Company was established on July 23, 2008.

On October 19, 2009, the Company started to be part of the Vivendi group when its total quotas were granted to Société d’Investissement et de Gestion S.A.S 108 (“SIG 108”), a French company that is a wholly-owned subsidiary of Vivendi S.A. (“Vivendi”), under the name of VCB Participações Ltda. (“VCB”). On November 9, 2013, VCB Participações Ltda — (“VCB”), changed its corporate structure and its name to GVT Participações S.A.

The Company’s subsidiary  Global Village Telecom S.A. (“GVT S.A.”) is engaged in exploring telecommunication services, transmission of voice and information, media and related or supplementary activities. Founded on September 30, 1999, GVT S.A. obtained from the National Telecommunications Agency, ANATEL, the right to explore fixed switched telephone service in Region II of the General Concession Plan.  It also obtained from ANATEL the license to operate local and long-distance services throughout Brazil. In November 2006, GVT S.A. received license supplementation of fixed switched telephone service (STFC) for all regions of Brazil (as it was authorized to only some regions).  As a result, it now possesses the STFC license for the entire national territory.  GVT S.A. also has licenses to provide multimedia communication services (SCM) and pay-TV services (Conditional Access Services) for all of Brazil.

Group reorganization

On October 20, 2009, VCB became the parent company of VTB Participações S.A. (“VTB”). VTB, established on September 2, 2009, which was also engaged in ownership interest in other national or foreign companies, as partner, shareholder or quotaholder.

On November 12, 2009, the capital of VCB was increased by 230,715,000 common shares that were fully subscribed and paid-in by Vivendi. On that date, Vivendi obtained control over VTB.

On April 28, 2010, Vivendi promoted a new capital increase in VTB, with the issuance of another 782,300,000 common shares of GVT. VTB played an important role in the process of Vivendi acquiring control over GVT Holding S.A. (“GVT”), as it was the company assigned to conduct the public acquisition offer (“OPA”) of GVT’s shares.

On December 21, 2011, all GVT shares held by Vivendi, amounting to R$6,658,710 (represented by 6,658,710,903 subscribed and paid-in shares), were transferred to VTB, whose capital increased by the same amount. As a result, GVT became a wholly-owned subsidiary of VTB.

On December 22, 2011, the shareholders of GVT Participações promoted the 4th amendment to the Bylaws, increasing the Company’s capital by 7,671,725,903 quotas with par value of R$1.00 each, which were fully paid-in by Vivendi through contribution of the VTB shares it held (7,671,725,903 shares).  VCB, which held 100 VTB quotas until then, became its parent company and Vivendi became the holder of 99.99% of interest in VCB.

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On December 28, 2011, the shareholders of  VCB promoted the 5th amendment to the Bylaws, according to which all quotas belonging to Vivendi (7,671,725,903 quotas) were granted to SIG 108, in exchange for new shares of the last company. On that date, SIG 108 became parent company of GVT Participações, with 99.99% of interest.

Corporate changes which occurred in the fourth quarter of 2011 are included in GVT group’s reorganization, maintaining untouched indirect control over Vivendi, and their purpose is to (i) integrate its companies’ activities, (ii) rationalize resources and combined expenses, and (iii) form a more efficient corporate structure.

On August 15, 2013, following the Company’s request, ANATEL (National Telecommunications Agency) gave its consent to the corporate structure simplification of the Company and its subsidiaries. This reorganization occurred on September 3, 2013, contemplating the following procedures: (1) transformation of GVT Ltda. corporate type into privately-held corporation; (2) merger by GVT (Holding) of subsidiary VTB; and (3) merger by GVT S.A. of parent company GVT (Holding). As a result, the GVT S.A. is now directly controlled by GVT Participações S.A.

GVT Sales Status

On September 18, 2014, the Purchase and Sale Agreement and Other Covenants was signed between Telefonica Brazil SA (“Telefônica”), as purchaser, and Vivendi and its subsidiaries, as sellers, through which all of the Company’s shares would be acquired by Telefônica. The operation described in the contract has not yet been implemented, since it is subject to certain conditions precedent, among them the attainment of applicable corporate and regulatory authorizations, including the authorization of the Administrative Council for Economic Defense - CADE and the National Telecommunications Agency - ANATEL. Therefore, there was no change in the control of GVT.

On December 22, 2014, the Board of Directors of Anatel granted approval for Telefonica Brazil SA to acquire full control of  GVT S.A. CADE,  has not yet formalized its final assessment in relation to the transaction Group entities

2                 Group entities

The financial statements include the financial statements of GVT Participações and its direct and indirect subsidiaries, as listed below:

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3                 Basis of preparation

a.              Statement of compliance

These financial statements include:

·                  The financial statements prepared according to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and also in accordance with accounting practices adopted in Brazil — comprised by IFRS standards as published in Portuguese language by the Accounting  Pronouncements Committee (CPC), endorsed the Brazilian Exchange Commission (CVM) and Federal Accounting Council (CFC) and certain other requirements from the Brazilian Corporation Law.

To enable better and consistent presentation, certain reclassifications were made in the comparative Financial statements, which impacted mainly, the Deferred income tax and social contribution taxes and the Intangible assets accounts presented in the non-current assets group of the Statement of financial position as at December 31, 2013.

The issue of these financial statements was authorized by the Board of Directors on February 25, 2015.

b.              Basis of measurement

Financial statements have been prepared based on historical cost, except for the financial instruments measured at fair value through income.

c.               Functional and presentation currency

Financial statements are being presented in Brazilian Reais, which is the functional currency of the Company. All financial information is presented in reais and has been rounded to the nearest value, except otherwise indicated.

d.              Use of judgments and estimates

The preparation of financial statements according to IFRS and CPC standards require Management to make judgments, estimates and assumptions that affect the application of accounting principles and the reported amounts of assets, liabilities, income and expenses. The actual results could differ from these estimates.

Estimates and assumptions are reviewed in a continuous manner. Reviews in relation to accounting estimates are recognized in the period in which the estimates are reviewed and in any future periods affected.

Information about critical judgment referring to the accounting policies adopted which impact the amounts recognized in the financial statements are included in the following notes:

·                  Allowance for doubtful accounts (Note 7 - Trade accounts receivable)

·                  Provision for contingencies (Note 16 - Provision for contingencies)

·                  Provision for property, plant and equipment dismantling costs (note 18-Provision for property, plant and equipment dismantling  costs)

·                  Financial instruments (Note 25 - Financial instruments)

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·                  Share-based payment (Note 26 — Share based payment)

Information on uncertainties as to assumptions and estimates that pose a high risk of resulting in a material adjustment within the next financial year are included in the following notes:

·                  Deferred taxes (Note 8 - Recoverable and deferred taxes)

·                  Property, plant and equipment useful life (note 11- Property, plant and equipment)

·                  Provision for contingencies (Note 16 - Provision for contingencies)

·                  Property, plant and equipment dismantling costs (note 18 - Provision for property, plant and equipment dismantling costs)

·                  Financial instruments (Note 25- Financial instruments)

·                  Share-based payment (Note 26 — Share based payment)

4                 Significant accounting policies

The accounting policies described in detail below have been consistently applied to all the periods presented in these financial statements. The accounting policies have been consistently applied in all the companies and are consistent with those used in the previous year.

a.              Basis of consolidation

Consolidation

In the Company’s financial statements, all direct and indirect subsidiaries are fully consolidated.

Description of the main consolidation procedures:

(a)         Elimination of intercompany asset and liability account balances;

(b)         Elimination of investment in the capital, reserves and retained earnings (losses) of subsidiaries; and

(c)          Elimination of intercompany income and expense balances and unearned income arising from intercompany transactions.

Equity method

b.              Foreign currency

Foreign currency transactions

Transactions in foreign currency, that is, those not undertaken in the functional currency, are translated at the exchange rate on the dates of each transaction. Monetary liabilities denominated in foreign currency were translated into functional currency at the foreign exchange rate prevailing at the balance sheet date.

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The gains and losses from the fluctuations in the exchange rates on monetary assets and liabilities are recognized in the statement of income. Non-monetary assets and liabilities acquired or contracted in foreign currency are translated based on the exchange rates on the dates of the transactions or on the dates of valuation at fair value when applicable.

Transactions abroad

Assets and liabilities of foreign transactions are translated into Brazilian reais (presentation currency) at the exchange rate prevailing on balance sheet date. Income and expenses from foreign transactions, except for operations in hyperinflation economies, are converted into Brazilian Real at average exchange rates calculated on transaction dates.

c.               Financial instruments

c.1          Non-derivative financial assets

GVT Participações initially recognizes the loans, receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are initially recognized on the date of the negotiation under which the Company becomes a party to the contractual provisions of the instrument. GVT Participações derecognizes a financial asset when the contractual rights to the cash flow of the asset expire, or when the GVT Participações transfers the rights to the reception of contractual cash flows over a financial asset in a transaction in which essentially all the risks and benefits of ownership of the financial asset are transferred. Any interest that is created or retained by GVT Participações is recognized as a separate asset or liability. Financial assets and liabilities are offset and the net amount reported in the balance sheet only when GVT Participações has a legally enforceable right to set off and there is intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments, but not quoted on any active market. Such assets are initially recognized at fair value plus any transaction costs directly assignable. After the initial recognition, the loans and receivables are stated at amortized cost using the effective interest method, less any loss from reduction to the recoverable value.

Accounts receivable are originally recognized at fair value.

Cash and cash equivalent include the balances for cash and financial investments with great liquidity and original maturity dates of three months or less as from the contractual date.

c.2          Non-derivative financial liabilities

Non-derivative financial liabilities are comprised of loans, used credit facilities, suppliers and other accounts payable. These financial liabilities are initially recognized at fair value plus any attributable transaction costs. After the initial recognition, these financial liabilities are stated at amortized cost using the effective interest rate method.

c.3          Derivatives - cash flow hedge

The Company maintains derivative financial instruments to hedge its exposures to foreign currency variation risks for highly probable future purchases of property, plant and equipment (“items to be hedged”).

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Derivatives are initially recognized at fair value; any attributable transaction costs are recognized in profit or loss when incurred. After the initial recognition, derivatives are measured at fair value and changes in the fair value are usually recorded in the income (loss).

When a derivative is designated as a hedge instrument to hedge cash flow variability, the effective portion of variation in the derivative’s fair value is recognized in other comprehensive income and disclosed in “equity evaluation adjustments” caption in equity. Any non-effective portion of the variations in the fair value of the derivative is recognized immediately in net income.

Accumulated value held under valuation adjustments to equity is reclassified to income for the same period in which hedged item affects income.

If the hedge instrument no longer satisfies the hedge accounting criteria, expires or is sold, wound up, exercised or has its designation revoked, then the hedge accounting is discontinued prospectively. If there are no more expectations regarding the occurrence of the planned transaction, then the balance in other comprehensive income is reclassified to income (loss).

d.              Property, plant and equipment

Recognition and measurement

Property, plant and equipment items are measured at historical acquisition or construction cost, which includes acquisition cost, cost directly incurred to put the asset in operation, and estimated operation site dismantling and rehabilitation costs, less accumulated depreciation and accumulated impairment losses.

The cost includes expenditures that are directly attributable to the acquisition of assets. The cost of assets built by the Company includes materials and direct labor, as well as any other costs attributable to bringing the assets to the location and condition required for them to operate in the manner intended by management, costs for dismantling and restoration of the site where they are located, and borrowing costs on qualifiable assets for which their start capitalization date is January 1, 2009 or later.

Subsequent costs

The replacement cost of a component of a fixed asset item is recognized at the book value of the item if it is probable that the economic benefits incorporated to the component will flow to the GVT Participações S.A. and if the cost can be reliably measured. The book value of the component that has been replaced by another is written off. The daily maintenance costs of fixed assets are recognized to profit or loss as incurred.

Depreciation

Depreciation is calculated on the depreciable values, which is the cost of an asset, or other amount that substitutes cost, less residual values.

Depreciation is recognized to profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment, since this method best reflects the standard of usage of the future economic benefits incorporated to the asset. Leased assets are depreciated over the shorter of the lease term or the estimated useful life of the asset, unless it is reasonably certain that the ownership will be obtained at the end of the lease term by the Group.

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The depreciation methods, useful lives and residual values are reviewed at each reporting date and any adjustments are recognized as changes in accounting estimates

e.               Intangible assets

Goodwill

Goodwill arising from the acquisition of subsidiaries is included in intangible assets in the balance.

Other intangible assets

Other intangible assets acquired by the Company with finite useful lives are carried at cost, less accumulated amortization and accumulated impairment losses.

Subsequent expenses

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally-generated goodwill and trademarks, are recognized in profit or loss as incurred.

Amortization

Amortization is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the intangible assets, except goodwill, from the date they are available for use, since this is the method that best reflects the consumption pattern of the future economic benefits embodied in the asset. These useful lives have not been changed and are described in note 13.

The amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

f.                Leased assets

Financial leases

Leases in terms of which the GVT Participações assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. After initial recognition, the asset is depreciated for in accordance with the accounting policy applicable to that asset.

Minimum lease payments made under financial leasing are apportioned between financial expenses and reduction of the outstanding liability. Financial expenses are allocated in each period over the lease period in order to produce a continuous and periodic compounding interest rate over the remaining liability balance. Contingent lease payments are recorded by reviewing minimum lease payments over the remaining lease period upon confirmation of the lease adjustment.

Operational lease

The costs for operating leasing are charged to income on the straight-line basis over the lease period.

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g.              Impairment

Financial assets (including receivables)

A financial asset not measured at fair value through profit or loss is assessed at each reporting date for objective evidence of impairment loss. An asset is impaired when there is objective evidence that a loss event has occurred after the initial recognition of the asset, and that such loss event had a negative effect on the projected future cash flows of that asset that can be reliably estimated.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of the amount due to the Group on terms that the Group would not consider otherwise, indication that the debtor or issuer will file for bankruptcy, or disappearance of an active market for a security. In addition, for an equity instrument, a significant or prolonged decrease in the fair value of the asset, below its cost, is objective evidence of impairment.

For its receivables, the Group considers as evidence of impairment both individually and on an aggregate basis. All significant receivables are assessed for impairment. All the receivables are material on an individual basis, identified as non-impaired on an individual basis are collectively assessed for any impairment loss not yet identified. Receivables that are not individually significant are assessed on an aggregate basis in relation to impairment by grouping the notes with similar risk characteristics.

When assessing impairment on an aggregate basis the Group makes use of historical trends of probability of default, the recovery term and the amounts of losses incurred, adjusted to reflect the management’s judgment in relation to the assumptions, if the current economic and credit conditions are such that the actual losses will probably be higher or lower than those suggested by historical trends.

Non-financial assets

The carrying amounts of non-financial assets of GVT Participações, except for deferred income tax and social contribution, are reviewed at each reporting date for indication of impairment. If such indication exists, the asset’s recoverable amount is determined. For goodwill and intangible assets with an undefined useful life or intangible assets under development that are not yet available for use, the recoverable value is estimated on an annual basis.

The recoverable value of an asset or cash-generating unit is the greater of its value in use and its fair value less selling expenses. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market conditions as to the recoverability period of capital and the risks specific to the asset.

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h.              Employee benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity (pension fund) and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as employee benefit expenses in profit or loss for the periods in which the services are rendered by the employees.

Short-term benefits for employees

Obligations for short-term employee benefits are measured on a non-discounted basis and incurred as expenses as the related service is rendered. The liability is recognized at the amount expected to be paid under the cash bonus plans or short-term profit sharing if the Company has a legal or constructive obligation to pay this amount as a result of prior service rendered by the employee, and the obligation can be reliably estimated.

Share-based payment transactions

The fair value of share-based payment awards is recognized at the grant date, as personnel expenses, with a corresponding increase in equity, over the period when employees become unconditionally entitled to the benefits. The amount recognized as an expense is adjusted to reflect the actual number of share options for which the related service and non-market vesting conditions are expected to be met, so that the amount ultimately recognized as an expense is based on the actual number of awards meeting these conditions at vesting date. For share-based payment awards with a non-market vesting condition, the fair value at grant date is measured to reflect such conditions and there is no change for differences between expected and actual benefits.

i.                 Provisions

A provision is set up when GVT Participações has a legal or constructive obligation as a result of a past event, which can be reliably estimated, and it more than likely that an outflow of funds will be required to settle the obligation. Provisions are calculated by discounting the expected future cash flows at a pre-tax rate which reflects the current market evaluations as to the value of the cash over time and the specific risks of the liability.

j.                 Net operating income

Telecommunication and communication services (pay-TV)

Income is recognized when services are provided. Services provided and not billed up to month end are estimated and recorded in accordance with the accrual basis.

Income from Vono prepaid sales, and GVT IP telephone services (VOIP) are recorded as advances and recognized when services are rendered.

Income is not recognized if there is significant uncertainty in their realization.

k.              Income tax and social contribution

The income tax and social contribution, both current and deferred, are calculated based on the rates of 15% plus a surcharge of 10% on taxable income in excess of R$ 240 for income tax and 9% on taxable income for social contribution on net income, and consider the offsetting of tax

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loss carryforward and negative basis of social contribution, limited to 30% of the taxable income. The income tax and social contribution expenses comprise current and deferred taxes on income.

Current taxes are the taxes payable or receivable on the taxable income or loss for the year, at tax rates enacted or substantively enacted on the reporting date, and any adjustments to taxes payable in relation to prior years.

The Company enjoys income tax reduction incentives on net sales of services provided in Northeast units, specifically Bahia and Pernambuco states. These incentives are calculated based on income from services rendered, according to projects submitted to, approved and recorded by SUDENE - Northeast Development Authority. It is recorded in accounting books as described in item l. below.

Deferred taxes are recognized in relation to the temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the related amounts used for taxation purposes. Deferred taxes are not recognized for the following temporary differences: initial recognition of assets and liabilities in a transaction that is not business combination, and not affecting the accounts nor taxable profit or loss, and differences related to investments in subsidiaries and subsidiary entities when likely not to be reversed within a foreseeable future. Deferred taxes are measured at tax rates expected to be applied to temporary differences when they are reversed, based on laws enacted or substantively enacted up to the reporting date of the financial statements.

Deferred tax assets and liabilities are offset when there is a legal enforceable right to set off current tax assets and liabilities, and the latter relate to income taxes levied by the same tax authority on the same taxable entity.

A deferred income tax and social contribution asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable income will be available against which the unused tax losses and credits can be utilized. Deferred income tax and social contribution tax assets are reviewed at each reporting date and reduced when their realization is no longer probable.

l.                 Governmental subsidy

Governmental subsidies are recognized in income when there is a reasonable assurance that grant will be received and that conditions established to receive it will be met by the Company and its subsidiaries. Later, they are allocated to the tax incentive reserve in equity.

m.          Determination of adjustment to present value

Adjustment to present value was applied to ICMS credit accounts classified in non-current assets deriving from property, plant and equipment credits (CIAP), tax benefits (Bom emprego, Pro-DF and PR import) and Property, plant and equipment dismantling costs, according to the following rates:

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n.              New standards and interpretations not adopted

Several new standards, amendments to standards and interpretations are effective for the years started after January 1, 2014, and have not been adopted to the preparation of these  financial statements. Those that may be relevant to the Company and its subsidiaries are listed below. The Company and its subsidiaries do not plan to adopt those standards in advance.

IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009)

IFRS 9 (2009) introduces a new requirement for classification and measurement of financial assets. Under IFRS 9 (2009) financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions in relation to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment loss of financial assets and hedge accounting.

IFRS 9 (2010 and 2009) is effective for periods beginning on or after January 1, 2015. The adoption of IFRS 9 (2010) may have an impact on the financial assets of the Company and its subsidiaries, but no impact on the financial liabilities of the Company and its subsidiaries.

IFRS 15 Revenue from Contracts with Customers (Customer Contracts Revenue)

IFRS 15 requires an entity to recognize the amount of revenue reflecting the consideration that they expect to receive in exchange for control of those goods or services. When the new standard is adopted it will replace most of the detailed guidance on revenue recognition that currently exists in IFRS and US GAAP. The new standard is applicable from or after January 1, 2017, with earlier application permitted by IFRS. The standard may be adopted retrospectively, using an approach of cumulative effects. The Company is evaluating the effects that IFRS 15 will have on its financial statements and disclosures. The Company has not yet chosen the method of transition to the new standard or determined the effects of the new standard in today’s financial reports.

The Accounting Pronouncements Committee (CPC) has not issued yet any of those accounting pronouncement, interpretation  or amendments in Portuguese, therefore, no early adoption of those standards is possible.

5                 Financial risk management

Interest rate risk

As of December 31, 2014, gross financial debt totaled R$ 4,860,707 (R$ 4,502,110, in 2013), indexed at several variable indices, such as variable rate based on TJLP (long-term interest rate), IPCA (Extended Consumer Price Index) and Euribor rate (see note 13). GVT Participações decided not to contract hedging instrument for exposure to interest rate fluctuation.

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Currency risk

Due to concentration of GVT operations in Brazil, transactions related to provision of telecommunication services are not exposed to financial market risks of foreign exchange rate fluctuation.

Transactions maintained by GVT in foreign currency refer mainly to expenditures for property, plant and equipment acquisition, which are carried out in US$ and Euro, and loans raised in Euros.

As of December 31, 2014, amount of loans in foreign currency owed by GVT Participações, including nominal debt and interest, was € 1,110,000 (R$ 3,582,932). The Company does not have a credit facility available, see Note 13.

GVT Participações does not have contracts for commercial or speculative purposes.

See sensitivity analysis of foreign currency variations in Note 25.

Credit risk

Credit risk is the possibility of a financial loss of GVT Participações if a client or a counterpart of a financial instrument fails to fulfill its contractual obligations arising mainly from trade accounts receivable and investments of the GVT Participações.

Trade accounts receivable and other credits

Due to broad client base, GVT Participações is not exposed to significant risks regarding receipt of accounts receivables from specific clients.

See note 7 - Trade accounts receivable, for further details on overdue trade notes that have not been written-off as losses yet.

Investments

GVT Participações limits its exposure to credit risks by investing with prime financial institutions. 100% of the investments are classified with Rating “AAA and AA”. Management actively monitors credit ratings and, as the GVT Participações and its subsidiaries have invested only in securities with high credit ratings, Management does not expect counterparties to fail in complying with their obligations.

Liquidity risk

Considering cash flow generated by its transactions, cash and cash equivalents, and amounts available from credit facilities, GVT Participações understands that it will be able to cover its operating and property, plant and equipment acquisition expenses, as well as to settle its debts in the following 12 months.

As of December 31, 2014, net financial debt, based on financial statements, was R$4,282,015, comprised of short and long-term loans and financing less amount recorded as cash and cash equivalents and forward contracts receivable (hedge). On this date, the Company has a credit line available with the Société d’Investissements et Gestion 109 (“GIS”) in the amount of € 15.500, also got a new credit line with BNDES of R $ 1,000,292, 5 and BNB in the amount of R $ 146,632,4, to be drawn from January 2015, see Note (13).

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Financial debt, per maturity date, is as follows:

(*)                        By summing up installment in the chart above, which totals  R$ 4,860,707, and discounting installments that will mature in 2015, which amount to R$ 1,333,295 and are accounted for in current liabilities, as well as interest on transactions, one obtains book balance shown in Note 13 - Loans and financing - installment classified in non-current liabilities, amounting to R$ 3,527,412.

6                 Cash and cash equivalents

Highly liquid short-term interest earning bank deposits are promptly convertible into a known sum of cash and subject to an insignificant risk of change of value.

On December 31, 2014, interest earning bank deposits refer substantially to Bank Deposit Certificates (CDI) and Debentures subject to repurchase agreements, remunerated at rates that vary from 90,0 % to 103,5% of the CDI.

The Group’s exposure to credit, currency and interest rate risks, related to other investments is disclosed in Note 25.

7                 Trade accounts receivable