(fixes typo in headline)
By Sujata Rao and Darcy Lambton
LONDON, Oct 20 (Reuters) - Dogan Yayin's tax dispute with the Turkish government is a technical issue but has political implications and could affect investment, the head of Turkey's Dogan Holding said on Tuesday.
Dogan Yayin, which owns half of the country's private media market, faces a demand of $3.3 billion in collateral in a tax row with Prime Minister Tayyip Erdogan's Islamist-rooted government which has sparked fears about press freedom in European Union candidate Turkey.
"Its a technical, legal issue...which we are trying to sort out. The very process, no one can deny it has political implications so we are having to deal with this situation also," Nebil Ilseven, Dogan's general coordinator, or chief executive, told Reuters and Reuters television on the sidelines of the annual Adam Smith investment conference on Turkey.
The company says the record fine is in response to its critical news coverage, including corruption allegations, of the Islamist-rooted government. Prime Minister Tayyip Erdogan, who enjoys an overwhelming majority in parliament, rejects the charge and accuses Dogan of acting like an opposition party.
"This is an issue of governance, including public governance, and it is something that could have a certain effect on investments, that's a long-term issue," Ilseven said.
Turkey's state media watchdog said earlier on Tuesday it had given Dogan three months to comply with a law limiting foreign ownership of Turkish companies.
"We are talking of a report based on a certain interpretation of the law," Ilseven said. "The position of the related company is that this matter needs to be challenged in court. This is the process we are going through now."
A Turkish newspaper said last month Dogan sold more than a 25 percent stake in its 28 radio and TV stations to Germany's Axel Springer and violated the law.
Under Turkish law, foreigners cannot own more than a 25 percent stake in the private radio and television company.
"It's a matter of how it is calculated and interpreted. The limit (for foreign ownership) is 25 percent. We are trying to see how they came to this calculation," Ilseven said.
(Writing by Carolyn Cohn; Editing by Ron Askew)