diff --git a/app/controllers/spree/paypal_controller.rb b/app/controllers/spree/paypal_controller.rb
index ac6fdddd..c78e3608 100644
--- a/app/controllers/spree/paypal_controller.rb
+++ b/app/controllers/spree/paypal_controller.rb
@@ -7,11 +7,14 @@ def express
       items = order.line_items.map(&method(:line_item))
 
       additional_adjustments = order.all_adjustments.additional
-      tax_adjustments = additional_adjustments.tax
       shipping_adjustments = additional_adjustments.shipping
 
+      # we remove taxes refunds (negative amounts) from taxes
+      # because paypal doesn't accept negative taxes
+      @tax_adjustments, @negative_tax_adjustments = additional_adjustments.tax.partition { |a| a.amount >= 0 }
+
       additional_adjustments.eligible.each do |adjustment|
-        next if (tax_adjustments + shipping_adjustments).include?(adjustment)
+        next if (@tax_adjustments + shipping_adjustments).include?(adjustment)
         items << {
           :Name => adjustment.label,
           :Quantity => 1,
@@ -87,8 +90,9 @@ def line_item(item)
       }
     end
 
-    def express_checkout_request_details order, items
-      { :SetExpressCheckoutRequestDetails => {
+    def express_checkout_request_details(order, items)
+      {
+        :SetExpressCheckoutRequestDetails => {
           :InvoiceID => order.number,
           :ReturnURL => confirm_paypal_url(:payment_method_id => params[:payment_method_id], :utm_nooverride => 1),
           :CancelURL =>  cancel_paypal_url,
@@ -97,7 +101,8 @@ def express_checkout_request_details order, items
           :cppheaderimage => payment_method.preferred_logourl.present? ? payment_method.preferred_logourl : "",
           :NoShipping => 1,
           :PaymentDetails => [payment_details(items)]
-      }}
+        }
+      }
     end
 
     def payment_method
@@ -108,15 +113,17 @@ def provider
       payment_method.provider
     end
 
-    def payment_details items
+    def payment_details(items)
       # This retrieves the cost of shipping after promotions are applied
       # For example, if shippng costs $10, and is free with a promotion, shipment_sum is now $10
       shipment_sum = current_order.shipments.map(&:discounted_cost).sum
 
+      negative_tax_adjustments_sum = @negative_tax_adjustments.map(&:amount).sum
+      tax_adjustments_sum = @tax_adjustments.map(&:amount).sum
       # This calculates the item sum based upon what is in the order total, but not for shipping
       # or tax.  This is the easiest way to determine what the items should cost, as that
       # functionality doesn't currently exist in Spree core
-      item_sum = current_order.total - shipment_sum - current_order.additional_tax_total
+      item_sum = current_order.total - shipment_sum - current_order.additional_tax_total + negative_tax_adjustments_sum
 
       if item_sum.zero?
         # Paypal does not support no items or a zero dollar ItemTotal
@@ -143,7 +150,7 @@ def payment_details items
           },
           :TaxTotal => {
             :currencyID => current_order.currency,
-            :value => current_order.additional_tax_total
+            :value => tax_adjustments_sum
           },
           :ShipToAddress => address_options,
           :PaymentDetailsItem => items,
diff --git a/spec/features/paypal_spec.rb b/spec/features/paypal_spec.rb
index 4af75250..acedd5b2 100644
--- a/spec/features/paypal_spec.rb
+++ b/spec/features/paypal_spec.rb
@@ -275,18 +275,18 @@ def fill_in_guest
     end
   end
 
-  context "can process an order with Tax included prices" do
+  context "can process an order with VAT included prices" do
     let(:tax_rate) { create(:tax_rate, name: 'VAT Tax', amount: 0.1,
-                            zone: Spree::Zone.first, included_in_price: true) }
+                            zone: Spree::Zone.last, included_in_price: true) }
     let(:tax_category) { create(:tax_category, tax_rates: [tax_rate]) }
     let(:product3) { FactoryGirl.create(:product, name: 'EU Charger', tax_category: tax_category) }
-    let(:tax_string) { "VAT Tax 10.0%" }
+    let(:tax_string) { "VAT Tax 10.0% (Included in Price)" }
 
     # Regression test for #129
-    context "on countries where the Tax is applied" do
+    context "from countries where VAT is applied" do
 
       before do
-        Spree::Zone.first.update_attribute(:default_tax, true)
+        Spree::Zone.last.update_attribute(:default_tax, true)
       end
 
       specify do
@@ -294,7 +294,7 @@ def fill_in_guest
         visit '/cart'
 
         within("#cart_adjustments") do
-          page.should have_content("#{tax_string} (Included in Price)")
+          page.should have_content(tax_string)
         end
 
         click_button 'Checkout'
@@ -311,10 +311,41 @@ def fill_in_guest
 
         login_to_paypal
         click_button "Pay Now"
+
         page.should have_content("Your order has been processed successfully")
       end
     end
 
+    # Regression test for #17
+    context "from countries where VAT is refunded" do
+      # this is required, but we will not use this zone on this checkout
+      let!(:default_tax_zone) { create(:zone, default_tax: true) }
+
+      specify do
+        add_to_cart(product3)
+        click_button 'Checkout'
+        fill_in_guest
+        fill_in_billing
+        click_button "Save and Continue"
+
+        within("#checkout-summary") do
+          page.should have_content("Refund #{tax_string}")
+        end
+
+        click_button "Save and Continue"
+        find("#paypal_button").click
+
+        within_transaction_cart do
+          # included taxes should not reach paypal
+          page.should have_content(tax_string)
+        end
+
+        login_to_paypal
+        click_button "Pay Now"
+
+        page.should have_content("Your order has been processed successfully")
+      end
+    end
   end
 
   context "as an admin" do