Jersey is clamping down on the VAT loophole currently exploited by companies such as Tesco and Asda who sell cheap CDs and DVDs online.

European law states that retailers operating outside the UK can sell products under £18 without charging VAT.

This has prompted companies such as Asda and Tesco to set up online services that operate out of Jersey, allowing the sites to sell cheap products.

However, senator Frank Walker, president of Jersey’s policy and resources committee, said that in future Jersey would only grant licences to companies that maintain a “legitimate operation” on the island.

Companies already granted a licence would be able to keep them, he added.