U.S. slams EU, but Apple tax demand first issued in Washington

* Washington warns $14.5 billion Irish bill may hurt relations

* U.S (Other OTC: UBGXF - news) . probe first alerted EU to tax schemes by Apple (NasdaqGS: AAPL - news) and others

* Senator who chaired hearings blames IRS, says EU 'fills vacuum'

By Foo Yun Chee and Alastair Macdonald

BRUSSELS, Aug 30 - The United States is furious at the European Union for handing Apple Inc a $14.5 billion tax demand on Tuesday but EU officials say it was Washington which put them on to the scheme in the first place.

It was a U.S. Senate report in May 2013 revealing the tech giant's deal with the Irish government to rule a big slice of its global earnings untaxable that prompted the European Commission to launch its own inquiries the following month.

The U.S. Treasury said the Commission's order that Apple pay 13 billion euros in back taxes to Ireland - which the company and Dublin are appealing - endangers EU-U.S. economic relations just as efforts to reach a transatlantic free trade pact unravel .

A senior Democratic senator said Brussels had made "a cheap money grab" for U.S. revenues.

But his party colleague who chaired hearings into Apple's taxes three years ago, Carl Levin, said the Europeans were only trying to take what U.S. authorities had failed to claim by not closing loopholes that allowed firms to hoard profits overseas.

"The IRS has failed to stake a claim for U.S. taxes on those revenues," he said in a statement, referring to the U.S. Internal Revenue Service. "So Europe attempts to fill the vacuum. Shame on Apple for dodging U.S. taxes. Shame on the IRS for failing to challenge Apple's tax avoidance."

For Marcel Fratzscher, president of leading German economic think-tank DIW Berlin and author of a new book on growing inequality, the mudslinging between politicians reflects how global corporations have exploited competition for investment to blunt states' efforts to co-operate against tax avoidance.

"Companies are playing one government against another," he told Reuters.

EU LISTENED TO SENATE

EU Competition Commissioner Margrethe Vestager, a straight-talking Dane who dismisses talk of leading an anti-American crusade, says the hearings at the Senate Permanent Subcommittee on Investigations chaired by Levin were what gave her Spanish predecessor grounds to demand disclosure by Apple (Swiss: AAPL.SW - news) and Ireland (Other OTC: IRLD - news) .

"The Commission listened and decided to look deeper into the matter," Vestager said in June, crediting media reporting and hearings in the British parliament for also providing evidence to help break secrecy around nearly 1,000 cases across Europe.

The Commission said in its judgment on Apple that the United States and other countries were welcome to try and claim some of the unpaid taxes for themselves - highlighting just the complaints of Levin and other senators three years ago when they skewered Apple CEO Tim Cook for failing to bring cash home.

As well as Apple, Starbucks Corp was ordered to pay more Dutch taxes and Amazon.com Inc and McDonald's Corp are still being investigated; a series of EU accusations that Google, part of Alphabet Inc (Xetra: ABEA.DE - news) , has abused its market power have also fuelled complaints from U.S. President Barack Obama's administration that Europe is out to punish American success.

Competition lawyer Pierre Sabbadini said political pressures drove different responses by different authorities. Leaks and public hearings on tax deals had created pressure among voters for the EU to act in 2013, he said, while the size of the companies targeted gave them clout with political leaders, too.

"When investigation-target companies have grown to the size of Apple, they can reach out for political support," he said.

The Obama administration has taken its own action to curb tax avoidance schemes lately. In April, amid public controversy over drug company Pfizer Inc (NYSE: PFE - news) 's proposed merger with Allergan Plc (Frankfurt: A1W5NE - news) of Ireland, it announced plans to curb so-called "tax inversions", by which U.S. firms have undertaken cross-border mergers in order to switch to a domicile abroad and so avoid U.S. taxes.

Pfizer abandoned the merger. (Additional reporting by David Morgan in Washington; Editing by Bill Rigby)