I might be able to explain the findings in the original question as well as the experiment run by user4416494.
The key is to understand that the PayPal fee is a constant amount plus a percentage of the purchase price. When a refund is made, the customer gets their full amount returned. But PayPal always keeps the fee. That means the merchant actually loses money. They lose the full, original purchase price (since that went back to the customer) AND they must provide the fee that PayPal keeps.
So, for example, if I make a donation of $5.00 to an organization, and then the organization refunds the $5.00, I get the full $5.00 back. But the organization does NOT come out even. They actually lose the fee that PayPal keeps for the transaction. (I haven't found this detail in the PayPal documentation, but I've verified it from my own IPNs.)
The seemingly awkward use of Canceled-Reversal--even for a dispute the merchant lost--is how PayPal "simplfies" this handling of the fee.
Consider a $5.00 purchase. If PayPal charges 2.2% + 30 cents, then the merchant gets paid $4.59 and PayPal keeps 41 cents.
(See the following stack overflow question with example messages provided by PayPal: PayPal IPN Example: Completed, Reversed, Canceled_Reversed and Refunded)
The sequence for a dispute that the merchant WON is this (Original purchase: $5.00):
- Completed: $4.59
- Reversed: $-4.59
- Canceled-Reversal: 4.59
- SUM: $4.59
So when all is said and done, the merchant account ends up with the amount they would have received if a dispute was never filed: $4.59.
Here is the sequence for a $5.00 purchase for a dispute the merchant lost:
- Completed: $4.59
- Reversal: $-4.59
- Canceled_Reversal: $4.59
- Refunded: $-5.00
- SUM: -0.41
So you can see the customer gets all their money back, and the merchant loses money so to pay for the fee that PayPal keeps.
- If the customer wins the dispute, they get a full Refund.
- The merchant foots the bill for the full refund, including the fee that that PayPal keeps.
- PayPal does not issue BOTH a Reversal and a Refund to the customer. That means the merchant would be charged twice and the customer would get twice the original purchase price back.
- So the "Reversal" can be seen as temporary. It will be canceled one way or the other.
- If the merchant wins, the Reversal is canceled and that's the end of it.
- But in the case of a dispute the customer won, the Reversal is reversed, and replaced by a full Refund.
- This is how PayPal actually makes sure the books balance (see the EJP comment near the end of the EJP answer).
EDIT
Here is a more detailed reply that includes fee. (These numbers come from the IPNs reported at this Stack Overflow page.)
Dispute won by merchant:
Status mc_gross mc_fee
==================================
Completed 5.00 0.45
Reversed -4.55 -0.45
Canceled_Reversal 4.55 0.45
===================================
SUM 5.00 0.45
Dispute won by customer:
Status mc_gross mc_fee
==================================
Completed 5.00 0.45
Reversed -4.55 -0.45
Canceled_Reversal 4.55 0.45
Refunded -5.00 -0.15
===================================
SUM 0 0.30
Interestingly, this shows that PayPal only keeps the constant part of the fee for a refund, and not the part of the fee based on a percentage of the purchase price.
