Steven Shingler is tied to Wales and ineligible to play Test rugby for Scotland, the International Rugby Board's council ruled in a unanimous decision.
Shingler was judged by the IRB to have been "captured" by Wales after playing in an Under-20 international against France in 2011.
The eligibility row was sparked when 20-year-old Shingler, a fly-half or centre, was included in Scotland's RBS 6 Nations squad earlier this year.
The Scottish Rugby Union appealed against the original decision that Shingler was tied to Wales, made by the IRB's regulations committee.
But that appeal was thrown out at yesterday's IRB council meeting.
An IRB statement said: "Under the regulations committee decision Shingler was deemed to have been captured by Wales, having represented the Wales Under-20 team against the France Under-20 team in a 2011 Six Nations fixture.
"Following the Scottish Rugby Union's appeal of the Shingler decision, the IRB council considered and determined the matter during its annual meeting in Dublin.
"Council, having considered all the facts and having heard submissions from the SRU and WRU legal representatives, dismissed the appeal and upheld the decision of the IRB regulations committee.
"The council therefore determined that Steven Shingler is tied to Wales in accordance with IRB regulation 8 and therefore is ineligible to represent another union."
The decisive factor was that both Wales and France had designated the Under-20s as their second senior national representative team for that match.
Andy Robinson initially selected Shingler on the understanding he qualified for Scotland through his mother, who was born in Dumfries.
Although Shingler had represented Wales Under 20s, the SRU argued he had never signed a declaration tying his international eligability to Wales.
The SRU cited the complex cases of Matthew Jarvis and James Loxton, who played for Wales Under 20s in 2010 before switching their allegiance to Ireland.
The cases of Jarvis and Loxton prompted a global review, which recommended playing for an Under 20 team should no longer commit that player to that nation.
But that recommendation was dismissed by the IRB, who determined the Under 20s can be considered as the next senior national team.
The IRB instructed unions to publicly publish their second team designation on an annual basis and ensure that all players are informed.