ECI is a very broad concept. Internal Revenue Service (IRS) has explained ECI here. Case law over the years has provided guidance on ECI. Courts have determined that in certain cases mere presence in the U.S. does not mean that it’s a U.S. Business. For an activity to be considered as a U.S. trade or business, it needs to be considerable, continuous, and regular. So if you are having a U.S. trade or business, your income connected to it is ECI. FDAP from U.S. sources (discussed next) is an ECI too. Owning a U.S. property can give rise to rental income and capital gains – that’s an ECI.
Since the threshold to be considered as a U.S. trade or business is very low, many foreign corporations are often subject to U.S. income tax obligations. Canada’s U.S. Tax treaty, however, provides relief to Canadian businesses!
Under the U.S. Canada tax treaty, business profits are only taxable in the United States if it reaches to the level of a Permanent Establishment. Article V of the U.S. Canada Tax Treaty provides details on the permanent establishment.