Ben, tks a lot for the prompt reply. Although the permanlink wasn’t set to Default (as it shouldn’t) I changed it to the one you recommended (shop base and category) and the problem was solved.
Now my contribution here in case someone goes through the same problem: After setting it up to “Shop Base and Category” save and test it (with positive result), I came back to the Admin panel and set it back to the original config I wanted “Shop Based” and saved. Meaning: It started to work with the original config I had set. Problem solved and with the permalink I was wishing to work.
All the best!