Linnworks is able to calculate taxes for Magento orders in two of the following ways:

1. Magento tax settings are ignored, Linnworks tax settings are applied

2. Linnworks tax settings are ignored, all tax information is taken from the Magento order XML.

To make Linnworks ignore any tax settings from Magento, the 'Use Magento Tax Settings' option in Settings - Channel Integration - Edit Magento Channel Details needs to be disabled. 

In this scenario, when an order is downloaded into Linnworks, the tax rate of the Linnworks item that is linked to the Magento order item will be checked. If the stock item does not have a specific tax rate applied and is using the system default rate, it will be the tax rate of the order country that is set up in Settings - General Settings - Manage Countries that will be used. In this case, Linnworks will take the unit price of the order item from the Magento order XML and add the tax on top of the unit price. The order total, as well as any discounts, will also be recalculated in this instance.

The second scenario is enabled by having the 'Use Magento tax Settings' option in the Magento channel details switched on. With this option applied, no recalculation will be performed by Linnworks and all price, tax, discount, and total values will be taken from the Magento order directly. 

Important: in order for either scenario to work and have the correct values recorded against Magento orders in Linnworks, the tax settings on Magento need to be set up the following way:

- Options "Catalog Prices", "Shipping Prices", "Apply Discount On Prices" should all have the same values either "Including Tax" or "Excluding Tax"

- "Apply Customer Tax" should be set to "After Discount"

These options are found in the System - Configuration - Tax settings on the Magento backend.

To ensure that the tax rates are applied correctly on Magento itself and thus ensuring that the information will also be correct in Linnworks, it is advisable to double-check the Shipping Tax Classes, set up in the same 'Tax' screen, as well as the Tax Rules, which are set up in the Sales - Tax - Manage Tax Rules tab of Magento.

Here are some helpful articles with regards to configuring the tax settings of a Magento installation:

General information on Magento Tax Rules

How to set up and configure a shipping tax class on Magento

How to configure tax settings on Magento

How to create and apply Magento tax rules