I've come across this problem just recently and then I realized what the issue is.
After checking my Google Account and changing it to reflect my current location, I went into the Google Play Store (don't ask me why they have separate location settings). It turns out that Google Play has my locations listed as United States, although I'm in Germany. I may have done this to watch a movie or read a book that wasn't available in the DE store.
Therefore it won't allow me to make a purchase with a German PayPal account.
Solution #1: Change your Google Play Store location to match your PayPal account location. Note: This will not work IF you have made the change within the year. You cannot frequently switch back and forth. Like me, you'd have to wait out the time in order to switch again.
Solution #2: Add a PayPal or Credit Card based in the Google Play country listed. Maybe you have a family member or friend will let you use their account, as long as you send them the money. I actually have to Paypal accounts U.S. and DE so I can switch between them.
Best of luck to all.
