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Straight from their site:
Mature Audiences Policy
PayPal will process payments for the purchase and sale of certain sexually oriented physical goods but currently does not allow transactions for sexually oriented digital goods. PayPal also currently does not allow transactions for any sexually oriented physical or digital goods by non-U.S. residents.
Digital Goods
PayPal prohibits transactions for all sexually oriented digital goods. Digital goods include downloaded pictures or videos, subscriptions to websites, or other content delivered through a digital medium.
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