George Osborne announced in November he was outlawing LVCR, a system which effectively allows goods coming from the Channel Islands worth less than £15 to ship VAT free.
That decision was, however, challenged in the courts by the Governments of Jersey and Guernsey, who claimed that closing the loophole on April 1 would be discriminatory and illegal.
But the law lord presiding over the review, Mr Justice Manning, agreed that was not the case following a three day hearing in London. He also said while businesses operating from the Channel Islands had not acted illegally, Customs and Excise were entirely within their rights to put an end to the practice.
The judge also reaffirmed that LVCR was contrary to EU law on account it created an unfair advantage and was therefore contrary to fiscal neutrality - as the Forum had argued.
"This is a victory for common sense in what has become something of case of David v Goliath," said the Forum's senior policy advisor, Phil McCabe.
"But the judiciary has today reaffirmed what George Osborne said in November, and that is LCVR is tax abuse and avoidance, plain and simple, and has to stop.
"Unfortunately it is too late for countless small firms which went to the wall, unable to compete with giants such as Amazon and Tesco, who have been able to unfairly use this loop hole to avoid paying billions in tax and undercut their small rivals by significant margins.
"Had the Government's decision been overturned there would have been serious consequences for high streets across the UK."
The Forum and pressure group Retailers Against VAT Abuse Schemes (RAVAS) have long argued that exploitation of LVCR by large companies was both anti-competitive and amounted to tax avoidance. Together they have argued that the change is lawful and necessary to protect small high street shops and internet traders.
EU law even stipulates that the Government is obliged to act in order to prevent tax abuse and avoidance.
RAVAS spokesman Richard Allen, who provided evidence at the inquiry, said: "The long-term and blatant abuse has destroyed many UK businesses which, other than for the lack of a 20% trading advantage, would have been viable healthy operations giving people jobs and generating tax revenue in the UK.
"While of course we have sympathy for the effect on employment in the Channel Islands that the closure of this industry will have, it is for the people of the Islands to strongly question their elected representatives as to how they could possibly allow an industry that was based on the abuse of tax to become so important to their economy."
LVCR was created almost 30 years ago as an administrative relief for perishable goods sent by post. However, in the past decade many large companies have moved operations off-shore in order to exploit it, undercutting smaller retailers unable to compete on price.
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