THE DISPUTE currently fracturing the Fine Gael and independent factions of cabinet is a classic vindication of why Ireland is treating its minority government with a degree of distant suspicion.

The received wisdom circling Leinster House during the government formation was that the confidence-and-supply arrangement with Fianna Fáil would be fine as long as the new government could predict everything. If it wanted to overhaul the law in a particular area, it simply needed to collaborate with Fianna Fáil first to figure out what flavour of pill could be swallowed.

But once the new government was faced with a bolt from the blue, it would be put to the test on two fronts: on both its dealings with Fianna Fáil, and on its own internal harmony. That received wisdom has been proven true this week with the bombshell European Commission ruling on Apple.

There is no doubting that the EU does not have the power to set Ireland’s corporate tax rate, or to decide what profits that tax rate should apply to. Nor is there any doubting that the EU would be firmly rebuked if it sought those powers.

But in order to accuse Ireland of giving Apple unfair tax treatment, the European Commission must – by definition – not only interpret Ireland’s law, but then also accuse Ireland of misapplying it to Apple’s sole advantage.

European Commissioner Margrethe Vestager, whose unit produced the bombshell ruling on Tuesday.

It claims Ireland did so through ‘rulings’ issued by the Revenue Commissioners in 1991 and 2007. Ireland claims those ‘rulings’ were merely a clarification of the law, not a bending of it.

If that’s the case it's perfectly legitimate for the state to defend itself by appealing the European Commission’s ruling – not only because the EC has misunderstood or misapplied Irish law, but because it has no business interpreting Irish tax law in the first place.

The trouble facing Kenny, Noonan and Fine Gael is that by defending Ireland’s law – as they are fully entitled, and plausibly obliged – they are defending a regime that seems almost designed to be abused.

The fundamental loophole exploited by Apple is that it remains perfectly legal to be registered in Ireland but taxed elsewhere. While some countries will tax their companies based on where they are registered, Ireland is only now phasing out its policy of taxing companies based on where they operate.

This allowed Ireland to become a platform for aggressive tax avoidance. So in 2003 you could, for example, register a company with the Companies Registration Office on Parnell Street, but hire a solicitor in Bermuda and cite their address as your own. Hey presto: your firm was tax resident in Bermuda, not Ireland. You could then credit this firm with your intellectual property – so if you had another Irish-based firm renting out a software product, you could sell your software to the Bermuda firm, and then force your Irish firm to pay royalties to your Bermudan one. This would leave your Irish firm with little residual profit to be shared with the Irish taxman, while your Bermudan firm claims the billions and pays corporate tax there instead.

You could have named this firm Google Ireland Holdings Limited. And you could have embraced the corporate tax regime in Bermuda, which – as it happens – is 0 per cent.

This might seem utterly immoral – that a firm can rack up billions of profits while the country which educated its workforce and paves the footpath outside the door can take only a pittance of the profit. And most people would agree with you.

As we’ve heard countless times this week from our ministers, Ireland believes taxes should be levied in the country where the added value is created. In the eyes of most rational people, a company headquartered in Cork that harvests billions in revenue by selling expensive products to customers around the world, ought to be paying tax in Ireland on its profits.

But – and here’s the rub – the behaviour of these firms is perfectly legal. For decades, Ireland has knowingly pursued a territorial taxation policy which allows giant firms to declare themselves ‘tax resident’ elsewhere. The only thing Apple did was exploit the gaps in the laws of various countries to declare some subsidiaries as being tax nomads, resident nowhere at all. But it’s all legal, every last bit of it.

This government has, to its credit, moved to close these loopholes. In 2013 it began to phase in a system where an Irish-registered firm would be considered tax resident in Ireland. It will have taken full effect by 2020.

But the morality of the previous regime is at the nub of the political problem now facing the cabinet. Fine Gael are creatures of law and order, wizened in the ways of government. They see the European Commission’s decision as an invasion of Ireland’s tax policy which, if left unchallenged, would undermine Ireland’s ability to dictate its own policy for attracting foreign firms.

But the independents at cabinet have made their careers from sniffing out something unjust, and cultivating the wave of public sentiment around it. And if all-powerful Brussels is telling the world’s most valuable (and tax efficient) company to write us a cheque for billions, they’re going to find it difficult to resist.

Bridging the gap between those two positions, and weathering the storm that will follow one way or another, will be a crucial litmus test for how long this reluctant marriage can last.

Gavan Reilly is Today FM's Political Correspondent. twitter.com/gavreilly