You have two different situations there.
Your Confirmation of Delivery/tracking only proves that the item was delivered, not that it was delivered intact.
The lost item/damaged parcel is an Item Not As Described Dispute.
The DC is not relevant.
The seller can refund on receiving a picture of the damaged parcel with the Canada Post/USPS tape and stickers. No Paypal interference needed.
The seller can demand return of the (empty) package. The buyer should use Confirmed Delivery because the next step would be:
If the seller is adamant that the package was delivered intact, the buyer can go to PP and file the NAD dispute. He must prove that the unwanted item has been returned before PP will refund.
Note that whether the item was received in good shape is not important here. What is important is that the seller is not required to pay out a refund unless the item (or at least the package or something) is returned.
This costs the buyer money and often is the reason that such cases are dropped by the buyer. That wasn't the reason the policy was adopted, but that's the way it works out.
Never push a buyer into filing a Paypal dispute. It will not go well. Settle "out of court."
