The system in the Netherlands is far from being without major flaws.
A coffeeshop may have up to 500gram stock. An individual may have up to 5 grams for personal use. This is not legal, but it will also not be prosecuted (it is tolerated but not legal). The growth is still illegal (allowed up to 3 plants for personal use) so supplying the shops with stock is not legal (but police will not check). At this time it is a topic discussed by politics again. Some want to turn back time (ie. also prosecute the users), others want to make it really legal (including controlled growth and transportation). Until now they never dared to make it totally legal as they fear the reactions from other countries.
Yes a Coffee Shop will pay taxes and not many will try to fraud as coffeeshops are monitored all the time. If they would sell to a minor, they would loose their license after 1 or 2 offences.
There is no european anti smoking law, but most european countries do have such law these days. In the Netherlands a no smoking law became active last july for restaurants and bars, this officially includes coffeeshops. But a lot of them allow smoking inside again.
Some pages on wikipedia on this:
http://en.wikipedia.org/wiki/Drug_po...he_Netherlands
http://en.wikipedia.org/wiki/Cannabis_coffee_shop