Hi!
I guess it's not a moodle related issue afterall. For me, it wasn't working because the IPN wasn't enabled in the paypal account. I got it to work by logging into my paypal account and going to profile ->Instant Payment Notification (IPN) and turning the feature on. I also specified the url where IPN will be notified.
With that we also have to enable the UTF - 8 as discussed in this thread.
I hope it helps