Q:

US tax - effectively connected income

I am confused about effectively connected income. I googled about it a lot, and I still not decipher what exactly it means, because different people said different things.
For example, if I hire a freelancer from abroad and I assign him work for business that goes on in USA, is it considered effectively connected income or not for him? It seems like it does, but then why are so many people asking their foreign-based employees to file W-8BEN when the correct would have been W-8ECI. Maybe "effectively connected" means the person has to be physically present in US, which is clearly not the case, hence W-8BEN applies. 

A:

ECI is relevant to non-resident aliens who are engaged in trade or business in the US. For that, you have to be present in the US, to begin with, or to own a business or property in the US.
So the people to whom it is relevant are non-resident aliens in the US or business/property owners, not foreign contractors. 
From the IRS:

The following categories of income are usually considered to be
  connected with a trade or business in the United States.
You are considered to be engaged in a trade or business in the United States if you are temporarily present in the United States as a
  nonimmigrant on an "F," "J," "M," or "Q" visa. The taxable part of any
  U.S. source scholarship or fellowship grant received by a nonimmigrant
  in "F," "J," "M," or "Q" status is treated as effectively connected
  with a trade or business in the United States.
If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you
  are considered to be engaged in a trade or business in the United
  States.
You usually are engaged in a U.S. trade or business when you perform personal services in the United States.
If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions,
  engaged in a trade or business in the United States. For example,
  profit from the sale in the United States of inventory property
  purchased either in this country or in a foreign country is
  effectively connected trade or business income.
Gains and losses from the sale or exchange of U.S. real property interests (whether or not they are capital assets) are taxed as if you
  are engaged in a trade or business in the United States. You must
  treat the gain or loss as effectively connected with that trade or
  business.
Income from the rental of real property may be treated as ECI if the taxpayer elects to do so.

