Jersey and Guernsey has lost their judicial review of the UK Government's decision to end Low Value Consignment Relief.
Low Value Consignment Relief is a tax loophole which means online retailer that operate out of the Channel Islands - including The Hut Group, Play.com and Amazon – do not have to pay VAT.
This gives these firms an advantage over High Street stores and other online retailers that have to pay VAT.
LVCR only affects certain products under £15, such as CDs, books, DVDs and certain video games.
But Jersey and Guernsey argue that this has put thousand of jobs at risk, including 200 staff at Indigo Starfish.
The UK Government announced plans to close the loophole last November.
Jersey's economic development minister Alan Maclean said: "The changes, which are targeted against the Channel Islands alone, create an uneven playing field. We know that some businesses will find it difficult to compete under these circumstances and as such, jobs are likely to be lost."
HMV CEO Simon Fox, although welcoming the move, questions whether just closing LVCR in the Channel Islands will actually achieve anything. Rival retailers could just move elsewhere, he told MCV earlier this year.