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UPDATE 1-Medtronic deal draws Washington scrutiny of tax relocations

(Adds Senator Hatch quote)

WASHINGTON, June 16 (Reuters) - The threat of U.S. tax revenue losses from Medtronic Inc's plan to buy rival Covidien Plc and move its base to Ireland is stoking concerns from lawmakers and the Obama administration about corporate tax "inversion" deals.

While such deals used to be rare, a recent flurry of them has motivated Democrats to propose legislation to make it harder for companies to use inversion deals that reap tax benefits from reincorporating in low-tax jurisdictions overseas.

Ron Wyden, chairman of the Senate Finance Committee and an Oregon Democrat, said the Medtronic deal underscores the urgent need to pursue corporate tax reform instead of waiting until after the 2016 presidential election.

"This will be a wakeup call," Wyden said in an interview with Reuters. "It's clear that the system rewards this kind of gaming."

Wyden in May promised to make it harder for U.S. companies to do inversion deals that take place on or after May 8, 2014, but such a reform has not yet gained widespread support.

Medtronic is acquiring Covidien for $42.9 billion in an inversion transaction that allows it to reincorporate in Ireland to take advantage of lower tax rates.

When asked about this latest agreement, a U.S. Treasury Department spokeswoman said the administration has put its weight behind legislative reform to deter inversion deals.

"We appreciate the efforts of those in Congress who are advancing legislative solutions to curtail inversions and help prevent the erosion of the U.S. tax base," Treasury spokeswoman Erin Donar said of Democratic legislation introduced in May.

"Stopping this practice as part of comprehensive tax reform continues to be a priority for the administration," she said.

Senator Orrin Hatch, the top Republican on the Finance Committee, blasted Democrats' anti-inversion efforts on Monday.

"It's total, total BS," Hatch told reporters in the Capitol. "What they want to do is put more burdens on our companies," Hatch said in response to questions about the Medtronic deal.

Democratic Senator Al Franken of Minnesota, where Medtronic is based, said on Monday that the proposed deal could bring up to 1,000 jobs to his state.

But Franken said he remains concerned about the cost of inversions to individual taxpayers.

"This needs careful scrutiny, and I plan to take a very close look at the specifics in the coming days," he said in a statement.

Two recently attempted inversions failed after they refocused political attention on the strategy. U.S.-based Pfizer Inc's bid for British drugmaker AstraZeneca Plc was rejected, while the proposed combination of U.S. advertising firm Omnicom Group Inc with France's Publicis Groupe SA collapsed for reasons unrelated to taxes.

(Additional reporting by Richard Cowan in Washington; editing by Matthew Lewis and Andrew Hay)

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