UPDATE 4-Turkey demands $3 bln for media group to appeal fine

* $3.2 bln guarantee sought during appeal over tax fine

* European Commission has criticised tax fine

* Row raises concerns about free press, investment climate

(Adds reaction from Dogan unit)

By Thomas Grove

ISTANBUL, Sept 25 (Reuters) - Tax authorities have demanded Turkey's largest media group Dogan Yayin raise a $3.24 billion guarantee in 15 days to appeal a fine that has prompted concerns about press freedom and could affect the country's EU entry bid.

The record $2.5 billion fine for unpaid taxes has ignited worries at home and abroad that Dogan Yayin, which controls half of the Turkish non-state media, is being punished for hostile coverage of the government, including allegations of graft.

Prime Minister Tayyip Erdogan's government denies this.

"The Tax Office has requested a guarantee of a total of 4.823 billion lira to be shown within 15 days as a combination of the original tax, the tax fine and current calculated interest," Dogan Yayin (DYHOL.IS) said in a statement.

The European Commission has condemned the tax fine and said it could affect the next annual progress report on Ankara's EU entry bid, due in October.

The move against Dogan, threatening its survival, has drawn parallels with Russia's treatment of oil giant YUKOS, which was crippled by a huge tax bill its owners said was politically motivated, undermining the country's investment climate.

"Dogan group cannot come up with the cash collateral of around $3.2 billion," said Mehmet Ali Birand, editor-in-chief of CNN Turk, which Dogan Yayin co-owns with Time Warner.

"To us this is premeditated murder. That is my perception and that is the perception of public opinion. Even those who are against it perceive it as political," Birand said.

People close to the government and Dogan have told Reuters they still expect a solution to be found, although all options remain open.

Government officials were not available to comment.

Dogan Yayin was hit with a separate $500 million fine in February. The company struggled then to raise enough collateral.

The new tax penalty is equivalent to the combined market value of Dogan Yayin, which has annual sales of about $2 billion, and parent company Dogan Holding (DOHOL.IS).

Dogan Yayin shares closed down 6 percent and Dogan Holding fell 4.3 percent.

INVESTMENT CLIMATE

The fine has also raised concerns about Turkey's investment climate. The tax code is criticised as too ambiguous and open to interpretation, and the International Monetary Fund has called on Turkey to make its tax authority independent.

The AK Party government, in power since 2002, has stepped up tax inspections as it tackles a vast unregistered economy.

Dogan Yayin and the Finance Ministry had been set to meet on Wednesday to discuss the tax fine, but the company said it would now wait for written notice of the fines before deciding whether to hold talks on a settlement or seek legal action.

If the company is forced to raise cash it may have to sell its lucrative stake in fuel retailer Petrol Ofisi (PTOFS.IS), one analyst said. The stake is seen worth around $1.2 billion.

Dogan's Petrol Ofisi stake had long been eyed for possible sale to Austrian partner OMV (OMVV.VI). [ID:nLB39285].

Other analysts expected the company to apply to use non-cash assets as collateral. Dogan Yayin declined to comment.

Dogan Yayin said it would use all legal means to appeal the tax office's demand.

Political observers say they expect the government and Dogan Yayin to come to some kind of agreement. Dogan's print and broadcast media have been cautious in their reporting of the latest fine, unlike in previous clashes with the authorities.

To read a TIMELINE on Dogan's tax problems, click on [ID:nLP67336]

(Additional reporting by Michael Stott and Conor Humphries; writing by Thomas Grove and Paul de Bendern; editing by Elizabeth Fullerton)