I was charged a foreign transaction fee after my recent purchases. I know GOG is owned by CD Projekt (from Poland) your domain was registered from a Cypress location, and at least one of your servers are in Canada. I did not see any where on the site about currency conversion, nor what country your business is considered to be doing business from. In the help section it does state all prices include VAT or tax depending on my location.
So what country am I doing business with?
Do I need to call my bank about the currency conversion charge - or is this an added fee I can expect on future purchases?

It's your bank because GOG is just so fucking perfect it's not even funny. All that crap like VAT, GST, HST, whatever the fuck it's called is all in the $5.99 or $9.99 price. I suppose your bank are being twats and they top on a foreign transaction fee because, you know, you're not buying from the US.

Yup, sorry to say, any such charges are being levied by the company responsible for your payment method. GOG do not charge any additional taxes or fees. The price displayed by GOG is what you pay them.
However, details such as exact exchange rates are handled by your payment provider. So if they decide to use an exchange rate or charge additional fees due to having to make a currency conversion, any such additional charges are beyond GOG's control.

Yeah, my bank used to charge me this fee for any foreign currency purchases on my debit card, so I switched to buying GoG games with Paypal. Since that move, I've had no problems (except a steadily growing backlog of Good Old Games).

As a non-american I'm pretty used to paying currency conversion fees on pretty much everything I buy online... or working to avoid them.
But I'm a little surprised that (if you're in the US) you'd get charged a fee for a payment in USD. Wouldn't have thought the location of GOG or it's servers would have an effect, only it's payment provider. But I could be wrong.
Since they've chosen to use USD as their standard pricing, it'd be odd if people in the US had to pay currency conversion fees, as that'd mean almost everyone would.
But it's probably the bank you'd need to talk to.

He was charged 'foreign transaction fee', a fee that is charged when you buy from company based in foreign country, not 'currency conversion fee'.

Change your credit card company. Look into Capital One as I do not believe they charge any form of Foreign Transaction Fee.
Hope this helps.

You do known that with PayPal you pay a 5% fee on the currency exchange rate?

Actually it depends on where in the world you are and the type of transaction.
For the UK at least, PayPal receives a quoted wholesale rate twice a day. We then add a 2.5% spread above this rate to determine the retail foreign exchange rate that is applied to transactions involving a currency conversion.
This does not apply though in all cases: for example, when I buy off of Steam with PayPal and my Romanian associated credit card (so not with money in the PayPal account - this is very important to note) I don't get charged anything extra (I don't count VAT here because it is already included in the shown price) and my bank is the one that does the currency conversion to USD or GBP or whichever currency I'm paying at a known rate (either Mastercards rate or the National Bank of Romania's established rate for the day which all commercial banks must follow) and don't pay any transaction fees or currency exchange fees.
So, if for example I need to pay 10 USD with PayPal, the system goes like this: PayPal asks for auth for my bank and asks for 10 USD, then my bank does a conversion from USD to RON at my banks established rate then clears the funds.
If I had to pay 10 GBP then the conversion would of been from GBP to RON.
If I had to pay in some really unknown currency that's not rated by BNR (national bank) then the conversion would go unknown currency -> euro (based on some numbers) -> RON.
This does not apply if you are going the route of transfer money from bank account into PayPal account (this is where that fee I mentioned above applies) and then pay with the money you have in your PayPal account (the available balance).
This whole procedure may depend on your bank and the various changes to the TOS PayPal has in effect in your region.
Also, to clear something out. BNR isn't a commercial bank, they are a sort of state institution that manages finances and relations and regulations that commercial banks (the ones you go to and open account at) must follow.

Some banks charge this fee and some don't; I have had both.

Basically, it is a dick move on the part of the bank, considering it doesn't cost them anything more to process a foreign-based transaction than it does for a local one, especially when there is no currency conversion involved at all. Its the kind of "nickel and dime" credit card crap that the recently passed credit card reform laws are supposed to get rid of. Now they just need to apply that to banks and debit cards then this kind of stupid stuff won't happen any more.
Well, at least for US residents.

Transfering money from your bank account to your PayPal account isn't possible in The Netherlands (unless they recently changed that).
They require the continious and eternal right to withdraw money from your bank account and/or to charge your creditcard.
It's a change they made when they received a European banking license a few years ago.
As for the 5%, they have been doing that for years.
Even before they had a European banking license they added 5% to the exchange rates.
I've never seen the bank I have a creditcard from doing that.

When I use my debit card it costs me an extra £1.50 to buy off GOG. With Paypal, the excess charge on a $9.99 game costs me £0.10 for the foreign currency conversion. Works out a better deal for me in the UK.

This wasn't in anyway a stab, nor complaint at GOG :) Just an inquiry as to what Country they were based out of.
I also wrongly stated currency conversion, while the topic is correct - it was a Foreign Transaction Fee - thanks to those that pointed it out.
The fee is common practice for all US banks. We deal with 6 different US banks and make regular over seas purchases. What really sucks is when they hit you with a conversion fee and the Foreign Transaction Fee. Needless to say, we no longer do business with that bank. I believe GOG (and all other foreign companies) also get hit with this same charge. The CC companies are double dipping.
All other foreign companies we do business state their POP (point of presence), then again, we receive shipments from these companies.

All banks do this, I also find walmart's "money" card does it too as I was charged using a debit card, not a credit card. There is no bank that I know of that refrains from this practice, double dipping I wasn't aware of but it stinks, just like the funky guy who does it with the sour cream dip.